^gg  Treasury  Department     :    :    Bureau  of  Internal  Revenue 

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■!    Bulletin  "E" 


INCOME  TAX 


TAXES 


DEDUCTIONS  AND  CREDITS 


REVENUE  ACT  OF  1918 


This  Bulletin  contains  information  from  which  taxpayers  and  their  counsel  may  obtain 
the  best  available  indication  of  the  trend  and  tendency  of  official  opinion  in  the  admin- 
istration of  the  income  and  profits  tax  provisions  of  the  Revenue  Act  of  1918,  with 
respect  to  deductions  and  credits  for  taxes.  It  does  not  have  the  force  or  effect  of  a 
Treasury  Decision  and  does  not  commit  the  Department  to  any  interpretation  of  law 
which  has  not  been  formally  approved  and  promulgated  by  the  Secretary  of  the  Treasury 
Taxpayers  and  officers  of  the  Bureau  of  Internal  Revenue  are  cautioned  against  reaching 
a  conclusion  in  any  case  merely  on  the  basis  of  similarity  to  conditions  stated  herein 
and  should  base  their  judgment  on  the  application  of  all  pertinent  provisions  of  the 
law,  regulations,  and  other  Treasury  Decisions  to  all  of  the  facts  in  each  case 


of  California 
q  Regional 
Y  Facji4 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 

1920 


oc/3o3'=l-H^l- 


Treasury  Department     :     :    Bureau  of  Internal  Revenue 

Bulletin  "E" 

INCOME  TAX 

TAXES 


DEDUCTIONS  AND  CREDITS 


REVENUE  ACT  OF  1918 


This  Bulletin  contains  information  from  which  taxpayers  and  their  counsel  may  obtain 
the  best  available  indication  of  the  trend  and  tendency  of  official  opinion  in  the  admin- 
istration of  the  income  and  profits  tax  provisions  of  the  Revenue  Act  of  1918,  with 
respect  to  deductions  and  credits  for  taxes.  It  does  not  have  the  force  or  effect  of  a 
Treasury  Decision  and  does  not  commit  the  Department  to  any  interpretation  of  law 
which  has  not  been  formally  approved  and  promulgated  by  the  Secretary  of  the  Treasury 
Taxpayers  and  officers  of  the  Bureau  of  Internal  Revenue  are  cautioned  against  reaching 
a  conclusion  in  any  case  merely  on  the  basis  of  similarity  to  conditions  stated  herein 
and  should  base  their  judgment  on  the  application  of  all  pertinent  provisions  of  the 
taw,  regulations,  and  other  Treasury  Decisions  to  all  of  the  facts  in  each  case 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 

1920 


INTRODUCTION. 


This  bulletin  is  designed  to  be  an  aid  in  ascertaining  the  proper 
deductions  and  credits  for  taxes. 

Part  I  tflfltee  to  the  deduction  of  taxes  and  Part  II  to  credit 
for  taxes. 

The  rulings  are  assembled  first  as  they  apply  to  individual  citizens 
and  residents  of  the  United  States.  Next  in  order  follow  rulings 
relating  to  nonresident  alien  individuals,  fiduciaries,  partnerships, 
and  personal,  service  corporations,  domestic  corporations,  and  foreign 
corporations. 

The  references  to  sections  and  articles  relate  to  the  sections  and 
articles  of  the  Avenue  Act  of  1918  and  Regulations  45,  respectively. 


SEPTEMBEr   If   1920. 

(2) 


CONTENTS. 


Tafir. 

Introduction 2 

Part  I. 

DEDUCTIONS   ALLOWED:   TAXES. 

Section  214(a)3,  Revenue  Act  of  1918 5 

Citizens  and  residents  of  the  United  States 5 

Taxes  paid  and  taxes  accrued 5 

War  taxes  under  the  Revenue  Act  of  1918 6 

Schedule  of  taxes,  Titles  V,  VI,  VII,  VIII,  IX,  X,  XI,  and  XII,  Revenue 

Act  of  1918 30 

Additional  income  taxes,  1913  and  1916  Acts 6 

Taxes  paid  by  lessee  in  addition  to  rent 7 

Taxes  on  bank  stock 7 

State  secured  debts  law 7 

Wisconsin  bonus  law 7 

Iowa  automobile  taxes 7 

Automobile  license  fees 8 

Assessments  for  local  benefits 8 

Assessments  for  local  benefits  paid  by  tenant 8 

Drainage  assessments 9 

New  York  State  franchise  tax 9 

New  York  State  personal  income  tax 9 

Foreign  taxes 9 

Nonresident  aliens 10 

Section  217,  Revenue  Act  of  1918 10 

Return  required 10 

Deductions  allowed 10 

Fiduciaries 10 

Inheritance  taxes 10 

Decedent's  taxes  paid  by  fiduciary 11 

Federal  estate  tax 11 

Interest  on  overdue  estate  tax 11 

Partnerships  and  personal  service  corporations 12 

Corporations 12 

Section  234(a)3,  Revenue  Act  of  1918 12 

Domestic  corporations 13 

Additional  taxes,  1909,  1913,  and  1916  Acts 13 

Ten  per  cent  tax  on  undistributed  net  income,  1917  Act 13 

Munitions  tax 13 

Import  or  tariff  duties 13 

Business,  license,  privilege,  and  stamp  taxes 13 

Taxes  on  bank  stock 1 .  13 

Capital-stock  tax 14 

Cuban  tax  imposed  on  corporations  operating  sugar  plantations 14 

Corporations  issuing  tax-free  covenant  bonds 14 

Addition  to  tax  for  delinquency  or  fraud 14 

Foreign  corporations 15 

(3) 


Part  II. 

.  CREDIT   FOR  TAXES. 

Tag*. 

Section  222(a),  Revenue  Act  of  1918 16 

Meaning  of  term  "amount  of    *    *    *    taxes  paid  during  the  taxable  year"..  17 

Analysis  of  credit  for  taxes 17 

Citizens  of  the  United  States 17 

Alien  residents  of  the  United  States 17 

Countries  which  do  or  do  not  satisfy  the  similar  credit  requirement  of 

section  222(a)3  of  the  Revenue  Act  of  1918 17 

Conditions  of  allowance  of  credit 18 

Taxes  paid 18 

Taxes  accrued 19 

Bond 19 

Citizens  of  the  United  States  residing  abroad 19 

Foreign  tax  withheld  in  lump  sum  from  dividends  paid  to  stockholders  in  the 

United  States 19 

Taxes  paid  by  citizens  of  the  United  States  to  foreign  countries 20 

Credit  for  tax  withheld  at  source 20 

Section  221(d),  Revenue  Act  of  1918 20 

Deduction  not  allowed  for  payment  of  tax 20 

Where  no  liability  for  normal  tax  in  personal  return 21 

Corporations: 

Section  238,  Revenue  Act  of  1918 21 

Procedure  for  securing  credit 21 

Domestic  corporation  affiliated  with  foreign  corporation 21 

Domestic  corporation  stockholder  in  foreign  corporation 22 

Taxes  paid  by  a  foreign  subsidiary 22 

Credit  under  section  240(c),  Revenue  Act  of  1918 23 

Taxes  paid  to  Philippine  Government 23 

Redetermination  of  tax  when  credit  taken  proves  incorrect 23 

Credits  allowed  corporations  in  computing  income  tax 23 

Section  236,  Revenue  Act  of  1918 23 

Domestic  corporations 24 

Foreign  corporations 24 

Corporation  with  fiscal  year  ending  in  1918 24 

Penalty  for  delinquency  or  fraud 24 

Credit  for  excess  taxes  paid 24 

Section  252,  Revenue  Act  of  1918 24 

Claim  for  credit  of  tax  erroneously  collected 25 

Action  on  claims  for  credit 25 

Effect  of  filing  claim  for  credit 26 

Credit  of  overpayment  of  tax  on  stock  dividends 26 

Overpayment  by  members  of  partnership  which  was  later  incorporated —  28 

Ten  per  cent  tax  on  undistributed  net  income,  1917  Act 29 

Credit  allowed  only  for  tax  actually  ascertained  to  be  in  excess  of  amount 

due 29 

Excess  profits  tax  paid  by  partnership  on  1918  income 29 


PART  I. 
DEDUCTIONS  ALLOWED:  TAXES. 


Sec.  214.  (a)  That  in  computing  net  income  there  shall  be  allowed 

as  deductions: 

***** 

(3)  Taxes  paid  or  accrued  within  the  taxable  year  imposed  (a)  by  Section  2M(a)3, 
the  authority  of  the  United  States,  except  income,  war  profits  and  191s. 
excess  profits  taxes;  or  (b)  by  the  authority  of  any  of  its  possessions, 
except  the  amount  of  income,  war  profits  and  excess  profits  taxes 
allowed  as  a  credit  under  section  222;  or  (c)  by  the  authority  of  any 
State  or  Territory,  or  any  county,  school  district,  municipality,  or 
other  taxing  subdivision  of  any  State  or  Territory,  not  including  those 
assessed  against  local  benefits  of  a  kind  tending  to  increase  the  value 
of  the  property  assessed;  or  (d)  in  the  case  of  a  citizen  or  resident  of 
the  United  States,  by  the  authority  of  any  foreign  country,  except  the 
amount  of  income,  war  profits  and  excess  profits  taxes  allowed  as  a 
credit  under  section  222;  or  (e)  in  the  case  of  a  nonresident  alien  indi- 
vidual, by  the  authority  of  any  foreign  country  (except  income,  war 
profits  and  excess  profits  taxes,  and  taxes  assessed  against  local  benefits 
of  a  kind  tending  to  increase  the  value  of  the  property  assessed),  upon 
property  or  business;    *    *    *. 

INDIVIDUALS. 

The    taxes    which   may   be    deducted    by    individual  re^entsS  0?  the 
citizens  and  residents  of  the  United  States  in  rendering Unlted  states- 
their  personal  income  tax  returns  consist  of  all  taxes 
paid  or  accrued  within  the  period  for  which  the  return  is 
made  that  are  not  specifically  excluded  by  section  214  (a)3. 

The  statute  provides  for  the  deduction  of  taxes  paid  M2S51SS*IS 
or  accrued  within  the  taxable  year.     A  taxpayer  whose  b^a^yeTii! 
accounts  are  kept  on  the  basis  of  cash  receipts  and  dis-  couStsf  his  ac 
bursements   is   entitled   to   deduct   taxes   actually  paid 
within   the   taxable   period  for  which  return  is  made, 
whereas   a   taxpayer  whose   accounts   are  kept   on  the 
accrual  basis  is  required  to  deduct  taxes  accrued,  whether 
or  not  actually  paid,  within  such  period.     A  tax  is  de- 
ducted when  it  is  subtracted  from  the  gross  income  of 
the  individual  in  computing  his  net  income  subject  to 
tax,  thus  serving  to  reduce  the  net  income,  whereas  a 
tax  is  credited  when  it  is  applied  against  the  total  tax 
due  on  his  return,  thus  serving  to  reduce  the  total  tax 
payable  on  the  return  by  the  amount  so  credited. 

(5) 


ie^edr  bya3Cthl     A  taxpayer  may  claim  as  a  deduction  the  amount  of 
Haveuuo  Act  oJwar  tax  pa^  on  facilities  furnished  by  public  utilities, 

which  includes  tax  on  railroad  and  steamship  fares,  and 
tho  war  tax  paid  on  admissions  and  dues.  A  taxpayer 
claiming  this  deduction  must  keep  some  record  of  such 
taxes  paid;  a  mere  estimate  will  not  be  sufficient. 

The  war  excise  taxes  imposed  by  section  904  and  paid 
by  the  purchaser  are  deductible,  but  the  war  excise  taxes 
imposed  by  section  900,  which  are  levied  against  and  paid 
by  the  manufacturer,  producer,  or  importer,  are  not  de- 
ductible by  the  individual  purchaser. 

On  certain  classes  of  merchandise  the  excise  tax  is 
levied  against  the  manufacturer,  producer,  and  importer; 
on  other  classes  of  merchandise  it  is  levied  against  the 
vendor  who  sells  for  consumption  or  use;  and  on  still 
others  it  is  levied  against  the  purchaser.  In  determining 
who  is  entitled  to  the  deduction  for  taxes  so  levied  and 
which  have  been  paid  on  the  purchase  or  sale  of  mer- 
chandise, one  must  be  guided  in  all  cases  by  tho  general 
rule  that  the  person  against  whom  the  tax  is  levied  is 
entitled  to  the  benefit  of  the  deduction  therefor. 

The  sales  tax  on  jewelry  is  levied  directly  against  the 
dealer  who  sells  for  consumption  or  use  and  he  alone 
is  entitled  to  the  benefit  of  the  deduction.  The  tax  is 
measured  by  the  price  for  which  the  article  is  sold.  If 
the  price  of  a  taxable  article  is  increased  to  cover  the 
tax,  the  tax  is  on  such  increased  price.  The  profit  to 
be  returned  from  the  sale  in  such  case  is  determined  by 
a  comparison  of  the  cost  to  the  dealer  and  the  actual 
sales  price,  including  the  amount  added  to  the  list  price 
to  offset  the  tax  which  he  is  required  to  pay.  Where, 
however,  the  tax  is  billed  to  the  consumer  as  a  separate 
item  such  amount  need  not  be  included  in  the  price  for 
which  the  article  is  sold  in  determining  the  profit  derived 
from  the  sale  thereof,  but  the  dealer  may  not  take  a 
deduction  in  respect  of  such  taxes  unless  he  includes  the 
amount  of  them  in  his  gross  income. 

Further  information  concerning  the  different  taxes  im- 
posed by  the  Revenue  Act  of  1918  may  be  obtained  from 
the  schedule  on  pages  30  to  39  of  this  Bulletin. 
Additional  in.     Additional  income   tax   assessed   against   a   taxpayer 
u^dcrtam3e  and  upon  the  basis  of  his  returns  filed  under  the  Acts  of 
me  Acts.  October  3,   1913,   and  September  8,    1916,   due  to  the 

correction  of  errors  made  in  preparing  such  returns,  are 
deductible  only  if  paid  prior  to  January  1,  1917,  since 


the  Acts  in  effect  for  1917  and  subsequent  years  prohibit 
the  deduction  of  Federal  income  taxes  in  computing  tax- 
able net  income. 

An  individual  who  leases  a  house  and  in  addition  to  lc  ^**^  P»|?t>y 
paying  rent  therefor  agrees  to  pay  taxes  imposed  on  thetorent- 
premises,  is  not  permitted  to  deduct  such  taxes  in  his 
personal  return  unless  the  property  is  used  by  him  for 
business  purposes.  If  so,  both  the  rent  and  taxes  may  be 
deducted  as  a  business  expense.  An  amount  so  paid  by 
the  lessee  on  account  of  taxes  would  constitute  income 
to  the  lessor,  and  would  also  be  an  allowable  deduction 
in  the  lessor's  return  unless  it  represented  an  assessment 
for  a  local  benefit,  in  which  event  the  amount  should 
be  reported  as  income  by  the  lessor,  but  would  not  be  an 
allowable  deduction. 

Taxes  paid  on  bank  stock  by  the  issuing  bank  in  be- ba^tset0^|xes  0D 
half  of  the  stockholders  are  deductible  in  the  returns  of 
the  stockholders  provided  they  are  included  in  the  gross 
income  reported  in  their  returns  as  dividends. 

Where  under  a  State  law  a  plan  is  authorized  provid-  ]a^ecured  debts 
ing  that  the  owner  of  securities  of  a  certain  kind  may,  by 
making  a  lump-sum  payment,  render  them  exempt 
for  all  time  from  taxation  under  the  laws  of  the  State, 
the  sum  so  paid  is  a  tax  within  the  meaning  of  the 
statute  and  as  such  is  deductible  from  the  gross  income 
of  the  payor  for  the  year  in  which  paid. 

The  tax  imposed  on  a  taxpayer's  1918  income,  under  BUW2^nsin  b0" 
the  bonus  law  of  the  State  of  Wisconsin,  passed  by  the 
State  Legislature  in  September,  1919,  does  not  constitute 
an  allowable  deduction  in  his  Federal  income  tax  return 
for  1918  since  it  was  not  a  known  liability  at  the  time 
of  closing  his  accounts  for  that  year;  however,  such  tax 
paid  in  1919,  is  an  allowable  deduction  in  the  taxpayer's 
return  for  1919. 

A  taxpayer  whoso  books  are  kept  on  the  receipts  and  bJ°]£t csautom°- 
disbursements  basis  may  deduct  from  gross  income  in  his 
1919  return  automobile  taxes  levied  against  him  by  the 
State  of  Iowa  for  1919  and  1920,  provided  ho  actually 
paid  such  taxes  during  1919.  If  the  books  of  the  tax- 
payer are  kept  on  the  accrual  basis,  then  only  the  amount 
of  such  tax  applicable  to  the  year  1919  may  be  taken  as  a 
deduction  in  preparing  his  1919  income  tax  return  and  the 
amount  which  represents  the  1920  tax  may  bo  deducted 
in  his  1920  return,  notwithstanding  that  he  actually 
paid  the  tax  for  both  years  in  1919. 


8 

censet?c«s°bI1°  °"  Automobile  license  foes  are  ordinarily  taxes  and  when 
so  identified  may  be  deducted  from  gross  income  as  such. 

for\Socai™encfits.  Payments  mado  to  a  State  or  political  subdivision, 
thereof,  in  the  form  of  assessments  against  local  benefits 
of  a  kind  tending  to  increase  the  value  of  the  property 
assessed  are  not  allowed  as  deductions  by  the  statute. 

So-called  taxes,  more  properly  assessments,  paid  for 
local  bonefits,  such  as  street,  sidewalk,  and  other  lika 
improvements,  imposed  because  of  and  measured  by  some 
benefit  inuring  directly  to  the  property  against  which 
the  assessment  is  levied,  do  not  constitute  an  allowable 
deduction  from  gross  income.  A  tax  is  considered 
assessed  against  local  benefits  when  the  property  subject 
to  the  tax  is  limited  to  the  property  benefited.  Special 
assessments  are  not  deductible,  even  though  an  incidental 
benefit  may  inure  to  the  public  welfare.  The  taxes  de- 
ductible are  those  levied  for  the  general  public  welfare 
by  the  proper  taxing  authorities  at  a  like  rate  against 
all  property  in  the  territory  over  which  such  authorities 
have  jurisdiction.  Assessments  under  the  statutes  of 
California  relating  to  irrigation  and  of  Iowa  relating  to 
drainage,  and  under  certain  statutes  of  Tennessee  relating 
to  levees,  are  limited  to  property  benefited,  and  when  it  is 
clear  that  the  assessments  are  so  limited,  the  amounts 
paid  thereunder  are  not  deductible  as  taxes.  When 
assessments  arc  made  for  the  purposo  of  maintenance  or 
repair  of  local  benefits,  the  taxpayer  may  deduct  the 
assessments  paid  as  an  expense  incurred  in  business, 
if  the  payment  of  such  assessments  is  necessary  to  the 
conduct  of  his  business.  When  the  assessments  are 
made  for  the  purpose  of  constructing  local  benefits, 
the  payments  by  the  taxpayer  are  in  the  nature  of  capital 
expenditures  and  are  not  deductible.  Where  assess- 
ments are  made  for  the  purpose  of  both  construction 
and  maintenance  or  repairs,  the  burden  is  on  the  tax- 
payer to  show  the  allocation  of  the  amounts  assessed 
•  to  the  different  purposes.  If  tho  allocation  can  not  be 
made,  none  of  the  amounts  so  paid  are  deductible. 
Assessments     Assessments  for  local  benefits   to  business   property 

paw1  b^1tenantts  paid  by  a  tenant  for  his  landlord  according  to  agreement 
are  held  to  be  additional  rent  paid  by  the  tenant,  and 
are  therefore  deductible  by  the  tenant  as  business 
expenses,  in  computing  his  taxable  net  income.  The 
amount  so  received  by  tho  landlord  is  taxable  income  to 


him,  but  because  of  its  nature  is  not  an  allowable  deduc- 
tion in  his  return. 

m?nfc3.Ea8eassess"  Where  State  drainage  laws  provide  both  for  special 
assessments  for  benefits  and  for  general  taxation,  depend- 
ing in  some  instances  upon  ordinances  promulgated  by 
the  trustees  of  the  drainage  districts,  taxpayers  must 
show  in  their  income  tax  returns  the  nature  of  assess- 
ments paid  under  such  laws.  Any  amount  representing 
an  assessment  for  a  local  benefit  would  not  be  deductible. 

bSSSSI*8**  The  New  York  State  franchise  tax  imposed  for  the 
privilege  of  doing  business  in  that  State  for  the  fiscal 
year  of  the  State  ending  October  31,  1920,  is  based  on 
1918  income,  but  is  not  due  and  payable  until  a  later  date. 
A  taxpayer  making  a  calendar  year  return  on  an  accrual 
basis  may  deduct  two-twelfths  of  such  tax  in  his  return 
for  1919  and  ten- twelfths  in  his  return  for  1920. 

pereonai01ncome  The  New  York  State  personal  income  tax  law,  passed 
May  14,  1919,  provides  for  the  imposition  of  an  annual 
tax  upon  income,  and  concludes  with  the  statement 
that  "such  tax  shall  first  be  levied,  collected,  and  paid 
in  the  year  1920,  upon  and  with  respect  to  the  taxable 
income  for  the  calendar  year  1919,  or  for  any  taxable 
year  ending  during  the  year  1919." 

A  taxpayer  of  the  State  of  New  York,  who  keeps  his 
accounts  upon  the  accrual  basis,  may  in  rendering  his 
Federal  income  tax  return  for  1919,  deduct  the  accrued 
tax  for  his  fiscal  year  ended  in  1919,  imposed  by  the 
New  York  State  personal  income  tax  law,  provided  such 
fiscal  year  ended  subsequent  to  May  14,  1919,  the  date 
of  passage  of  the  State  taxing  act.  In  case  his  fiscal 
year  ended  prior  to  May  14,  the  accrued  tax  would  not 
be  deductible  in  his  Federal  income  tax  return  for  1919, 
since  it  was  not  a  known  liability  at  the  time  of  closing 
his  accounts  for  such  fiscal  year. 

In  the  event  of  judicial  interpretation  of  the  New  York 
State  personal  income  tax  law  which  would  have  the 
effect  of  changing  the  individual's  tax  liability  there- 
under, it  would  be  necessary  for  him  to  file  an  amended 
return  for  Federal  income  tax  purposes. 
Foreign  taxes.  Taxes  imposed  by  a  foreign  country  other  than  assess- 
ments against  local  benefits  are  deductible  from  gross 
income,  except  the  foreign  income,  war  profits,  and 
excess  profits  taxes  which  are  allowed  as  a  credit  against 
the  tax. 
8937°— 20 2 


10 

NONRESIDENT  ALIENS. 

section  217,     Sec.  217.  That  a  nonresident  alien  individual  shall  receive  the 
Revenue  Act  of  ^       ,    i       ,    ,       •  -,'t 

1918.  benefit  of  the  deductions  and  credits  allowed  m  this  title  only  by 

filing  or  causing  to  be  filed  with  the  collector  a  true  and  accurate  return 
of  his  total  income  received  from  all  sources  corporate  or  otherwise  in 
the  United  States,  in  the  manner  prescribed  by  this  title,  including 
therein  all  the  information  which  the  Commissioner  may  deem  neces- 
sary for  the  calculation  of  such  deductions  and  credits:  Provided,  That 
the  benefit  of  the  credits  allowed  in  subdivisions  (c)  and  (d)  of  section 
216,  may,  in  the  discretion  of  the  Commissioner,  and  except  as  other- 
wise provided  in  subdivision  (e)  of  that  section,  be  received  by  filing 
a  claim  therefor  with  the  withholding  agent.  In  case  of  failure  to  file 
a  return,  the  collector  shall  collect  the  tax  on  such  income,  and  all 
property  belonging  to  such  nonresident  alien  individual  shall  be 
liable  to  distraint  for  the  tax. 

Return  re-     The  benefits  of  the  deductions  and  credits   allowed 

quired. 

against  net  income  for  the  purpose  of  the  normal  tax 
may  not  be  received  by  a  nonresident  alien  by  filing  a 
claim  with  the  withholding  agent,  but  only  by  claiming 
them  upon  filing  a  return  of  income,  except  as  permitted 
in  article  316,  relating  to  the  credit  for  personal  exemp- 
tion and  for  dependents. 
aUowedUctions  ^  nonresident  alien,  in  making  a  return  of  his  income 
from  sources  within  the  United  States,  may  deduct 
taxes  paid  to  a  foreign  country  if  and  to  the  extent  that 
they  are  connected  with  the  income  arising  from  sources 
within  the  United  States;  however,  he  is  not  entitled  to 
deduct  foreign  income  and  profits  taxes,  or  foreign 
taxes  assessed  against  local  benefits  of  a  kind  tending  to 
increase  the  value  of  the  property  assessed. 

Otherwise  the  same  general  rules  applicable  to  a  citizen 
or  resident  of  the  United  States  govern  the  computation 
of  the  deduction  allowed  a  nonresident  alien  on  account 
of  taxes. 

FIDUCIARIES. 

Section  225  provides  that  fiduciaries  shall  be  subject 
to  all  the  provisions  of  the  Act  which  apply  to  individuals ; 
therefore,  the  deduction  which  a  fiduciary  may  claim  on 
account  of  taxes  is  subject  to  the  same  rules  as  laid  down 
in  the  case  of  an  individual. 

State  inheritance  taxes  paid  by  the  executor  or  ad- 
ministrator of  the  estate  of  a  deceased  person,  which  are 
provided  by  law  to  be  deducted  from  the  respective 
legacies  or  the  distributive  shares,  are  not  allowable 
inheritance  deductions  in  computing  the  net  income  of  such  estate 
subject  to  tax,  even  though  the  will  contains  a  direction 


11 

to  pay  inheritance  taxes  out  of  the  residue.  Neither  is 
the  amount  of  such  tax  an  allowable  deduction  in  the 
returns  of  the  distributees  or  legatees,  since  it  is  imposed 
upon  the  transfer  of  the  property  before  it  reaches  them. 

A  testator  died  September  30,  1918,  having  kept  histaD3|cep^nt^ 
books  on  the  accrual  basis.  Taxes  assessed  against  himfl(*uciary- 
and  paid  by  his  executor  should  be  claimed  as  a  deduc- 
tion, in  accordance  with  section  214(a)3  of  the  Revenue 
Act  of  1918,  in  the  return  rendered  by  the  executor  in 
his  behalf  for  the  period  ending  September  30,  1918.  In 
a  similar  case,  if  the  decedent's  books  of  account  were 
kept  on  the  basis  of  cash  receipts  and  disbursements,  the 
executor  should  claim  such  taxes  paid  as  a  deduction  in  the 
return  of  the  estate  in  process  of  administration  for  the 
period  beginning  at  the  date  of  decedent's  death. 

The  Federal  estate  tax  is  not  deductible  in  Computing  ta^ederal  estate 
the  taxable  net  income  of  an  estate  in  process  of  admin- 
istration. 

The  estate  tax  is  entirely  separate  and  distinct  from 
the  income  tax.  In  substance,  the  Government  collects 
a  tax  on  the  income  accruing  up  to  the  moment  of  death. 
It  then  takes  out  of  the  estate  a  certain  part  as  a  transfer 
tax.  The  remainder  passes  and  becomes  the  estate,  the 
income  of  which  is  taxable  while  it  is  being  administered. 
When  the  estate  passes  into  the  possession  of  an  execu- 
tor, he  holds  for  the  United  States  that  portion  which  is 
required  to  be  deducted  as  a  transfer  tax.  The  remain- 
der is  the  estate  which  he  holds  for  creditors  and  bene- 
ficiaries, and  the  income  of  which  is  taxable.  When  he 
pays  to  the  Government  that  which  he  has  been  holding 
for  it,  he  pays  nothing  out  of  the  estate  the  income  of 
which  is  subject  to  tax.  The  law  separates  this  part  of 
the  original  estate  from  that  part  which  is  to  be  treated 
as  the  estate  for  purposes  of  income  taxes. 

The  reasons  leading  to  the  ruling  with  reference  to  the  d^MtatVtax!6' 
principal  part  of  the  Federal  estate  tax  are  equally  appli- 
cable to  interest  thereon.  Deduction  of  the  tax  is  re- 
fused for  the  reason  that  it  is  imposed  upon  the  privilege 
of  transmission  and  receipt  of  the  property  left  by  the 
decedent,  and  that  the  "estate  during  the  period  of 
administration  or  settlement,"  the  income  of  which  is 
taxed  (Revenue  Act  of  1918,  sec.  219(a)l),  does  not 
come  into  existence  until  the  satisfaction  of  this  tax.  It 
follows  that  the  "estate"  in  question  does  not  pay  the 
tax,  and  the  case  is  consequently  not  within  the  provi- 


12 

sion  relating  to  "taxes  paid  within  tho  taxable  year" 
(sec.  214 (a)3),  since  fetus  provision  plainly  refers  to  a 
tax  paid  by  the  taxpayer  taking  the  deduction. 

The  statute  also  permits  the  deduction  of  "interest  on 
indebtedness"  (sec.  214 (a)2).  The  item  in  question 
is  "interest."  It  is  not,  however,  interest  "on  indebted- 
ness" of  the  estate.  As  already  indicated,  the  entire  tax, 
principal  and  interest,  is  satisfied  before  the  "estate" 
comes  into  existence.  If  the  obligation  is  not  as  to  the 
"estate"  a  "tax,"  neither  is  it  an  "indebtedness." 

It  is  held,  therefore,  that  interest  on  unpaid  estate  tax 
is  not  deductible  from  gross  income  of  the  estate  in 
process  of  administration  in  determining  taxable  net 
income. 

PARTNERSHIPS  AND  PERSONAL  SERVICE 
CORPORATIONS. 

Partnerships  and  personal  service  corporations  as  such 
are  not  subject  to  taxation  under  the  Kevenue  Act  of 
1918,  but  are  required  to  render  returns  of  income.  The 
net  income  is  computed  in  the  same  manner  and  on  the 
same  basis  as  the  net  income  of  an  individual,  except 
that  the  deduction  of  contributions  or  gifts  is  not  per- 
mitted. Therefore  taxes  of  a  partnership  or  a  personal 
service  corporation  may  be  deducted  from  gross  income 
to  the  same  extent  as  provided  in  the  case  of  individuals. 

CORPORATIONS. 

Sec.  234.  (a)  That  in  computing  the  net  income  of  a  corporation 

subject  to  the  tax  imposed  by  section  230  there  shall  be  allowed  as 

deductions: 

***** 

Section  234  (a)     (3)  Taxes  paid  or  accrued  within  the  taxable  year  imposed  (a)  by 
o'fiois.  "    the  authority  of  the  United  States,  except  income,  war  profits  and 

excess  profits  taxes;  or  (b)  by  the  authority  of  any  of  its  possessions, 
except  the  amount  of  income,  war  profits  and  excess  profits  taxes 
allowed  as  a  credit  under  section  238;  or  (c)  by  the  authority  of  any 
State  or  Territory,  or  any  county,  school  district,  municipality,  or  other 
taxing  subdivision  of  any  State  or  Territory ,  not  including  those  assessed 
against  local  benefits  of  a  kind  tending  to  increase  the  value  of  the 
property  assessed;  or  (d)  in  the  case  of  a  domestic  corporation,  by  the 
authority  of  any  foreign  country,  except  the  amount  of  income,  war 
profits  and  excess  profits  taxes  allowed  as  a  credit  under  section  238 ;  or 
(e)  in  the  case  of  a  foreign  corporation,  by  the  authority  of  any  foreign 
country  (except  income,  war  profits  and  excess  profits  taxes,  and  taxes 
assessed  against  local  benefits  of  a  kind  tending  to  increase  the  value  of 
the  property  assessed),  upon  the  property  or  business:  Provided,  That 
in  the  case  of  obligors  specified  in  subdivision  (b)  of  section  221  no 


13 

deduction  for  the  payment  of  the  tax  imposed  by  this  title  or  any 
other  tax  paid  pursuant  to  the  contract  or  provision  referred  to  in  that 
subdivision  shall  be  allowed ;    *    *    *. 

DOMESTIC  CORPORATIONS. 

The  allowable  deduction  for  taxes  in  a  corporate  return 
is  limited  to  the  items  specified  in  section  234 (a) 3. 

Additional  excise  tax  assessed  against  a  corporation  ^a^J^10"*1 
under  section  38  of  the  Act  of  August  5,  1909,  and  paid and  i'm«  Acts. 
during  subsequent  years  is  an  allowable  deduction  from 
the  gross  income  reported  in  the  corporation's  return  for 
the  year  in  which  paid;  but  income  taxes  assessed  under 
the  Acts  of  October  3,  1913,  and  September  8,  1916,  are 
deductible  only  if  paid  prior  to  January  1,  1917. 

The  10  per  cent  tax  imposed  on  the  undistributed  net  Tenpercenttax 

r  r  l  on  undistributed 

income  of  corporations  by  section  10(b)  of  the  Revenue  °ett  income,  1917 
Act  of  1917  is  not  an  allowable  deduction  from  gross 
income  of  a  corporation  shown  on  an  income  tax  return. 

A  corporation  may  not  accrue  munitions  taxes  for  1916    Munitions  tax. 
and  1917  and  deduct  the  amount  so  accrued  during  each 
year  in  its  munitions  tax   return  for  that  year  before 
the  final  computation  of  the  munitions  tax  is  made. 

The  munitions  tax  as  finally  computed  must  be  de- 
ducted in  the  income  tax  return  (but  not  in  the  munitions 
tax  return)  for  the  year  in  which  the  tax  is  accrued,  irre- 
spective of  the  year  in  which  the  tax  is  actually  paid. 

Munitions  taxes  for  1916  which  are  actually  paid  in 
1917  are  properly  deductible  in  computing  the  munitions 
tax  for  the  calendar  year  1917.  (This  paragraph  and  the 
two  preceding  paragraphs  have  no  application  to  any 
return  filed  under  the  Revenue  Act  of  1918.) 

Import  or  tariff  duties  paid  to  the  proper  customs  ,  import  or  tariff 

*  t  ...  duties;   business, 

officers,  and  business,  license,  privilege,  and  stamp  taxes  aicdn|te>  Pri™le.ge, 
paid  to  collectors  of  internal  revenue  are  deductible  as 
taxes  imposed  by  the  authority  of  the  United  States,  pro- 
vided they  are  not  added  to  and  made  a  part  of  the  ex- 
penses of  the  business  or  the  cost  of  the  articles  or  mer- 
chandise with  respect  to  which  they  were  paid,  in  which 
case  they  can  not  be  deducted  separately  under  taxes. 

Banking  and  other  corporations  which  pay  taxes  ta^nk -stock 
assessed  against  their  stockholders  on  account  of  their 
ownership  of  the  shares  of  stock  issued  by  such  corpora- 
tions may  not  deduct  the  amount  of  taxes  so  paid.  The 
shares  of  stock  are  the  property  of  the  stockholders  who 
are  primarily  liable  for  payment  of  the  tax.     The  amount 


14 

of  tax  so  paid  by  the  corporation  is  in  the  nature  of  an 
additional  dividend  and  should  be  so  reported  by  the 
stockholder,  but  he  may  deduct  the  amount  of  the  tax 
from  his  gross  income  in  accordance  with  section  2 14  (a)  3. 
ta?pUal " stock  Tne  capital-stock  tax  imposed  by  section  1000  of  the 
Revenue  Act  of  1918,  may,  for  the  purpose  of  computing 
income  subject  to  income,  excess  profits,  and  war  profits 
taxes,  be  deducted  from  the  gross  income  for  the  year  for 
which  such  taxes  accrue,  if  the  accounts  of  the  corporate 
taxpayers  are  kept  on  the  accrual  basis,  or  may  be 
deducted  from  gross  income  for  the  year  in  which  paid, 
if  the  accounts  are  kept  on  the  receipts  and  disburse- 
ments basis. 
s,S£an  tax  °n  T^e  Republic  of  Cuba  (act  of  July  31,  1917),  imposes 
on  all  corporations  operating  sugar  plantations  in  Cuba 
a  tax  on  each  bag  of  sugar  produced.  As  this  tax  is 
based  on  production,  not  on  income,  and  is  in  the  nature 
of  an  excise  tax,  a  domestic  corporation  may,  under  the 
provisions  of  section  234 (a)3  of  the  Revenue  Act  of 
1918,  deduct  from  gross  income  in  its  return  to  the 
United  States  Government  the  amount  of  such  tax  paid 
to  the  Cuban  Government,  but  may  not  claim  the  amount 
as  a  credit  under  section  238  against  the  total  tax  due  to 
the  United  States, 
issufn^tax""^!  ^n  the  case  °^  corporations  issuing  bonds  or  obligations 
covenant  bonds,  containing  a  tax-free  covenant  clause  no  deduction  from 
gross  income  is  allowed  for  the  payment  of  the  income 
tax  or  any  other  Federal  tax  paid  pursuant  to  such 
covenant. 

In  the  case,  however,  of  corporate  bonds  or  obligations 
containing  an  appropriate  tax-free  covenant  clause,  the 
corporation  paying  a  State  tax  or  any  other  than  a 
Federal  tax  for  some  one  else  pursuant  to  its  agreement 
may  deduct  such  payment  as  interest  paid  on  indebted- 
ness. 
fo^ddennquency  The  addition  to  tax  authorized  to  be  assessed  by  scc- 
or fraud.  ^on  3^ 7^  Revised  Statutes,  as  amended,  on  delinquent 

or  false  and  fraudulent  returns  is  to  be  considered  a 
penalty  and  not  a  tax  except  for  purposes  of  collection. 
The  payment  representing  an  addition  to  tax  for  de- 
linquency in  filing  a  return  may  be  deducted  from  gross 
income  as  a  business  expense  when  such  an  addition  to 
tax  is  an  incident  to  carrying  on  a  business  or  trade. 
The  payment  of  an  addition  to  tax  upon  a  false  return 
may  not  ordinarily  be  deducted  from  gross  income  as  a 


15 

business  expense  and  may  never  be  deducted  in  the  case 
of  an  individual  who  himself  was  guilty  of  making  a 
fraudulent  return. 

FOREIGN  CORPORATIONS. 

Foreign  corporations  are  allowed  the  same  deductions  lo^fortaxcs31" 
from  their  gross  income  arising  from  sources  within  the 
United  States  as  are  allowed  to  domestic  corporations 
to  the  extent  that  the  deductions  are  connected  with 
such  gross  income.  Full  deduction  may  be  made  for 
taxes  imposed  by  the  United  States  or  any  of  its  pos- 
sessions or  by  any  State,  Territory,  or  political  subdi- 
vision thereof  except  taxes  for  local  benefits  and  income, 
war  profits,  and  excess  profits  taxes. 


PART  II. 
CREDIT  FOR  TAXES. 


INDIVIDUALS. 


Section  222(a),     Sec.  222  (a).  That  the  tax  computed  under  Part  II  of  this  title  shall 
Revenue   Act  of .  , .      ,      .  , 

1913.  be  credited  with : 

(1)  In  the  case  of  a  citizen  of  the  United  States,  the  amount  of  any 
income,  war  profits  and  excess  profits  taxes  paid  during  the  taxable 
year  to  any  foreign  country,  upon  income  derived  from  sources  therein, 
or  to  any  possession  of  the  United  States;  and 

(2)  In  the  case  of  a  resident  of  the  United  States,  the  amount  oc  any 
such  taxes  paid  during  the  taxable  year  to  any  possession  of  the  United 
States;  and 

(3)  In  the  case  of  an  alien  resident  of  the  United  States  who  is  a 
citizen  or  subject  of  a  foreign  country,  upon  income  derived  from 
sources  therein,  if  such  country,  in  imposing  such  taxes,  allows  a 
similar  credit  to  citizens  of  the  United  States  residing  in  such  country; 
and 

(4)  In  the  case  of  any  individual  who  is  a  member  of  a  partnership 
or  a  beneficiary  of  an  estate  or  trust,  his  proportionate  share  of  such 
taxes  of  the  partnership  or  the  estate  or  trust  paid  during  the  taxable 
year  to  a  foreign  country  or  to  any  possession  of  the  United  States,  as 
the  case  may  be. 

(b)  If  accrued  taxes  when  paid  differ  from  the  amounts  claimed  as 
credits  by  the  taxpayer  or  if  any  tax  paid  is  refunded  in  whole  or  in 
part,  the  taxpayer  shall  notify  the  Commissioner,  who  shall  redetermine 
the  amount  of  the  tax  due  under  Part  II  of  this  title  for  the  year  or 
years  affected,  and  the  amount  of  tax  due  upon  such  redetermination, 
if  any,  shall  be  paid  by  the  taxpayer  upon  notice  and  demand  by  the 
collector,  or  the  amount  of  tax  overpaid,  if  any,  shall  be  credited  or 
refunded  to  the  taxpayer  in  accordance  with  the  provisions  of  section 
252.  In  the  case  of  such  a  tax  accrued  but  not  paid,  the  Commissioner 
as  a  condition  precedent  to  the  allowance  of  this  credit  may  require  the 
taxpayer  to  give  a  bond  with  sureties  satisfactory  to  and  to  be  approved 
by  the  Commissioner  in  such  penal  sum  as  the  Commissioner  may 
require,  conditioned  for  the  payment  by  the  taxpayer  of  any  amount  of 
tax  found  due  upon  any  such  redetermination;  and  the  bond  herein 
prescribed  shall  contain  such  further  conditions  as  the  Commissioner 
may  require. 

(c)  These  credits  shall  be  allowed  only  if  the  taxpayer  furnishes  evi- 
dence satisfactory  to  the  Commissioner  showing  the  amoimt  of  income 
derived  from  sources  within  such  foreign  country  or  such  possession 
of  the  United  States,  and  all  other  information  necessary  for  the  com- 
putation of  such  credits. 

(10) 


17 

The  "amount  of    *     *     *     taxes  paid  during  the  tax- ter^eaning  of 
able  year"  means  taxes  proper  paid  or  accrued  during  the 
taxable  year  on  behalf  of  the  individual  claiming  credit, 
no  credit  being  given  for  amounts  representing  interest 
or  penalties. 

ANALYSIS  OF  CREDIT  FOR  TAXES. 

In  the  case  of  a  citizen  of  the  United  States,  whether  united  states.th° 
resident  or  nonresident,  the  basis  of  the  credit  for  taxes 
is  as  follows: 

(a)  ''The  amount  of  any  income,  war  profits  and  ex- 
cess profits  taxes  paid"  or  accrued  "during  the  taxable 
year    *     *     *     to  any  possession  of  the  United  States." 

(b)  "The  amount  of  any"  such  taxes  paid  or  accrued 
''during  the  taxable  year  to  any  foreign  country,  upon 
income  derived  from  sources  therein." 

(c)  The  "proportionate  share  of"  any  "such  taxes  of" 
a  partnership  of  which  he  is  a  partner  or  of  an  estate  or 
trust  of  which  he  is  a  beneficiary  paid  or  accrued  "during 
the  taxable  year  to  a  foreign  country  or  to  any  possession 
of  the  United  States,  as  the  case  may  be." 

In  the  case  of  an  alien  resident  of  the  United  States  the  ,A1i°_n  residents 

of    the     United 

basis  of  the  credit  for  taxes  is  as  follows:  states. 

(a)  "The  amount  of  any  income,  war  profits  and  ex- 
cess profits  taxes  paid"  or  accrued  "during  the  taxable 
year    *     *     *     to  any  possession  of  the  United  States." 

(b)  "The  amount  of  any  such  taxes  paid"  or  accrued 
"during  the  taxable  year  to"  the  country  of  which  he  is 
a  citizen  or  subject  "upon  income  derived  from  sources 
therein,  if  such  country,  in  imposing  such  taxes,  allows 
a  similar  credit  to  citizens  of  the  United  States  residing 
in  such  country." 

(c)  The  "proportionate  share  of"  any  "such  taxes  of" 
a  partnership  of  which  he  is  a  partner  or  of  an  estate  or 
trust  of  which  he  is  a  beneficiary  paid  or  accrued  "during 
the  taxable  year  to"  the  country  of  which  he  is  a  citizen 
or  subject  ("if  such  country,  in  imposing  such  taxes, 
allows  a  similar  credit  to  citizens  of  the  United  States 
residing  in  such  country"),  "or  to  any  possession  of  the 
United  States  as  the  case  may  be." 

The  following  is  an  incomplete  list  of  the  countries  .countries which 

.    .         ,  •      •!  do  or  do  not  sat- 

which  satisfy  the  similar  credit  requirement  of  section isf?  ih<i  simi>r 

47  m  Jt  credit  require 

222(a)3  of  the  Revenue  Act  of  1918,  either  by  allowing mcnt- 
to  citizens  of  the  United  States  residing  in  such  countries 
8937°— 20 3 


18 

a  credit  for  the  amount  of  income,  war  profits,  or  excess 
profits  taxes  paid  to  the  United  States  upon  incomes 
derived  from  sources  therein,  or,  in  imposing  such  taxes. 
by  exempting  from  taxation  the  incomes  received  from 
sources  within  the  United  States  by  citizens  of  the 
United  States  residing  in  such  countries:  Bulgaria, 
Canada,  Italy,  Newfoundland,  Salvador. 

The  following  is  an  incomplete  list  of  the  countries 
which  do  not  satisfy  the  similar  credit  requirement  of 
section  222 (a)3  of  the  Revenue  Act  of  1918,  either  by 
allowing  no  credit  to  citizens  of  the  United  States  re- 
siding in  such  countries  for  the  amount  of  income,  war 
profits,  or  excess  profits  taxes  paid  to  the  United  States 
upon  incomes  derived  from  sources  therein,  or  because 
such  countries  do  not  impose  any  income,  war  profits,  or 
excess  profits  taxes:  Argentina,  Bahama,  Belgium,  Ber- 
muda, Bolivia,  Bosnia,  Brazil,  Chile,  China,  Costa  Rica, 
Ecuador,  Egypt,  Finland,  France,  Great  Britain  and  Ire- 
land, Guatemala,  Herzegovina,  India,  Jamaica,  Japan, 
Montenegro,  Morocco,  New  Zealand,  Nicaragua,  Panama, 
Paraguay,  Persia,  Peru,  Portugal,  Roumania,  Santo 
Domingo,  Serbia,  Siam,  Sweden,  Switzerland,  Venezuela. 
The  former  names  of  certain  of  these  territories  are  here 
used  for  convenience  in  spite  of  the  actual  or  possible 
change  in  the  name  or  sovereignty. 

A  resident  of  the  United  States  who  is  a  citizen  or 
subject  of  any  country  hi  the  first  list  is  entitled,  for  the 
purpose  of  the  total  tax  due  the  United  States,  for  1918 
and  subsequent  years,  to  a  credit  for  the  amount  of  any 
income,  war  profits,  and  excess  profits  taxes  paid  or 
accrued  during  the  taxable  year  to  such  country  upon 
income  from  sources  therein.  If  he  is  a  citizen  or  sub- 
ject of  any  country  in  the  second  list,  he  is  not  entitled 
to  such  credit.  If  he  is  a  citizen  or  subject  of  a  country 
which  is  in  neither  list,  then  to  secure  the  desired  credit 
he  must  prove  to  the  satisfaction  of  the  Commissioner 
that  his  country  satisfies  the  similar  credit  requirement 
of  the  statute. 

CONDITIONS  OF  ALLOWANCE  OF  CREDIT. 

Taxes  paid.  When  credit  is  sought  for  income,  war  profits,  or  excess 
profits  taxes  paid  other  than  to  the  United  States,  the 
income  tax  return  of  the  individual  must  be  accompanied 
by  Form  1116,  carefully  filled  out  with  all  the  informa- 


19 


Taxes  accrued. 


Bond. 


tion  therein  called  for  and  with  the  calculations  of  credits 
indicated.  It  must  also  be  signed  and  duly  sworn  to  or 
affirmed.  If  the  taxes  for  which  credit  is  sought  have 
been  paid,  there  must  be  attached  to  Form  1116  the 
receipt  for  each  such  tax  payment. 

When  credit  is  sought  for  taxes  accrued  but  not  paid, 
the  form  must  have  attached  to  it  the  return  on  which 
each  such  accrued  tax  was  based.  The  receipt  or  return 
so  attached  must  be  either  the  original,  a  duplicate 
original,  a  duly  certified  or  authenticated  copy,  or  a 
sworn  copy.  In  case  only  a  sworn  copy  of  a  receipt  or 
return  is  attached,  there  must  be  kept  readily  available 
for  comparison  on  request  the  original,  a  duplicate 
original,  or  a  duly  certified  or  authenticated  copy. 

In  the  case  of  a  credit  sought  for  a  tax  accrued  but 
not  paid,  the  Commissioner  may  require  as  a  condition 
precedent  to  the  allowance  of  credit  a  bond  from  the  tax- 
payer in  addition  to  Form  1116.  If  such  a  bond  is  re- 
quired, it  shall  be  on  Form  1117.  It  shall  be  in  such 
penal  sum  as  the  Commissioner  may  prescribe  and  shall 
be  conditioned  for  the  payment  by  the  taxpayer  of  any 
amount  of  tax  found  due  upon  any  redetermination  of 
the  tax  made  necessary  by  such  credit  proving  incorrect, 
with  such  further  conditions  as  the  Commissioner  may 
require.  This  bond  shall  be  executed  by  the  taxpayer, 
his  agent  or  representative,  as  principal,  and  by  sureties 
satisfactory  to  and  approved  by  the  Commissioner.  See 
section  1320. 

Income  and  profits  taxes  paid  to  a  foreign  country  I.Ci,ti?,c^  ?f  ,he 

1  ,  *  ...  .        tinted  States  rc- 

by  a  citizen  of  the  United  States  residing  in  such  foreign  sidi"g  abroad. 
country  on  income  from  sources  within  the  United  States 
can  not  be  treated  as  a  credit  under  section  222.     Such 
taxes  are  deductible  under  section  214  (a)3  in  computing 
net  income  in  his  return  to  the  United  States. 

Where  under  a  foreign  income  tax  law  corporations    ,?°rAl.gS*,a 

°  "  withheld  in  lump 

are  required  to  withhold  a  fixed  percentage  of  the  total  2^fr<Sjdd,vt<j 
amount  of  dividends  paid  to  stockholders  in  the  United  ?{op£h°ld<;r*   (in 

.      *      .  .  the  L  ruled  States 

States,  such  tax  being  withheld  in  a  lump  sum,  although 
imposed  upon  the  individual  stockholders,  the  amounts 
withheld  not  being  itemized  by  the  foreign  government, 
in  lieu  of  the  individual  tax  receipts  required  to  bo 
attached  to  Form  1116,  the  taxpayer  may  attach  to  the 
return  on  Form  1116  his  affidavit  showing  the  number  of 
shares  held  during  the  year,  whether  or  not  any  of  the 


20 

shares  held  by  him  were  acquired  or  sold  during  the  year, 
giving  the  dates  and  number  of  shares  so  acquired  or 
sold;  the  total  number  of  shares  outstanding  on  which 
the  dividend  was  declared  regardless  of  whether  the 
dividend  was  paid  to  citizens  of  the  United  States  or 
of  other  countries;  and  the  total  dividends  paid  or 
accrued  on  such  shares  during  the  year,  and  attach  to 
and  make  a  part  of  such  affidavit  a  certified  copy  of  the 
tax  receipts  from  the  foreign  tax  collector  showing  the 
payment  of  the  tax  en  bloc,  with  copies  of  any  other  docu- 
ments which  he  may  have  that  will  serve  to  corroborate 
the  facts  set  forth  in  such  affidavit. 

The  amount  of  the  credit  claimed  should  be  computed 
by  dividing  the  total  tax  withheld  by  the  total  number 
of  shares  of  the  corporation  outstanding  and  multiplying 
this  result  by  the  number  of  shares  held  during  the  entire 
3~ear.  In  the  event  that  any  of  the  shares  were  acquired 
or  disposed  of  during  the  year,  an  adjustment  should  be 
made  showing  the  amount  of  taxes  properly  allocated  to 
the  dividends  received  after  acquisition  or  before  dispo- 
sition of  the  stock, 
citizen  Pof'd  the  -^y  mc°me  or  profits  taxes  paid  by  a  citizen  of  the 
toretencountrie*0"^11^0^  States  to  a  foreign  country,  with  respect  to 
income  received  from  sources  therein,  are  an  allowable 
credit  under  section  222(a)  against  the  amount  of  tax 
due  the  United  States  provided  the  taxpayer's  books  of 
account  are  kept  on  the  cash  receipts  and  disbursements 
basis  and  his  return  is  rendered  accordingly;  if  the  tax- 
payer's books  of  account  are  kept  on  the  accrual  basis 
the  credit  is  limited  to  such  foreign  taxes  as  accrued  in 
the  taxable  year  for  which  the  return  is  rendered. 

CEEDIT  FOR  TAX  WITHHELD  AT  SOURCE. 

section  22i(d),     Section  221(d)  provides  that  "income  upon  which  any 

Revenue  Act  of  .  •      \  ,  •  i  i     t  i  ■,  i  ■  • 

1918.  tax  is  required  to  be  withheld  at  the  source  under  this 

section  shall  be  included  in  the  return  of  the  recipient 
of  such  income,  but  any  amount  of  tax  so  withheld  shall 
be  credited  against  the  amount  of  income  tax  as  computed 
in  such  return. " 
Deduction  not     The  entire  amount  of  the  income  from  which  the  tax 

allowed  for  pay-  ,         .'J       -L     __  ,        .     '       _   __    .  .  .. 

mentcftax.  was  withheld  shall  be  mcluded  in  gross  income  without 
deduction  for  such  payment  of  the  tax,  but  any  tax 
actually  so  withheld  shall  be  credited  against  the  total 
tax  as  computed  in  the  taxpayer's  return. 


21 

The  amount  of  normal  income  tax  paid  at  the  source  bj|^'c™.  "^jj^ 
by  a  debtor  corporation  in  behalf  of  a  bondholder  may  be  ^^  personal 
credited  against  the  total  tax  due  from  the  bondholder 
even  though  he  may  be  liable  for  surtax  only. 

CORPORATIONS. 

Sec.  238(a).  That  in  the  case  of  a  domestic  corporation  the  total  jjfveniie  "Actual 
taxes  imposed  for  the  taxable  year  by  this  title  and  by  Title  III  shall  i9i». 
be  credited  with  the  amount  of  any  income,  war  profits  and  excess 
profits  taxes  paid  during  the  taxable  year  to  any  foreign  country,  upon 
income  derived  from  sources  therein,  or  to  any  possession  of  the  United 
States. 

If  accrued  taxes  when  paid  differ  from  the  amounts  claimed  as 
credits  by  the  corporation,  or  if  any  tax  paid  is  refunded  in  whole  or 
in  part,  the  corporation  shall  at  once  notify  the  Commissioner  who  shall 
redetermine  the  amount  of  the  taxes  due  under  this  title  and  under 
Title  III  for  the  year  or  years  affected,  and  the  amount  of  taxes  due 
upon  such  redetermination,  if  any,  shall  be  paid  by  the  corporation 
upon  notice  and  demand  by  the  collector,  or  the  amount  of  taxes  over- 
paid, if  any,  shall  be  credited  or  refunded  to  the  corporation  in  accord- 
ance with  the  provisions  of  section  252.  In  the  case  of  such  a  tax 
accrued  but  not  paid,  the  Commissioner  as  a  condition  precedent  to  the 
allowance  of  this  credit  may  require  the  corporation  to  give  a  bond 
with  sureties  satisfactory  to  and  to  be  approved  by  him  in  such  penal 
sum  as  he  may  require,  conditioned  for  the  payment  by  the  taxpayer 
of  any  amount  of  taxes  found  due  upon  any  such  redetermination;  and 
the  bond  herein  prescribed  shall  contain  such  further  conditions  as  the 
Commissioner  may  require. 

(b)  This  credit  shall  be  allowed  only  if  the  taxpayer  furnishes  evi- 
dence satisfactory  to  the  Commissioner  showing  the  amount  of  income 
derived  from  sources  within  such  foreign  country  or  such  possession 
of  the  United  States,  as  the  case  may  be,  and  all  other  information 
necessary  for  the  computation  of  such  credit. 

(c)  If  a  domestic  corporation  makes  a  return  for  a  fiscal  year  begin- 
ning in  1917  and  ending  in  1918,  only  that  proportion  of  this  credit 
shall  be  allowed  which  the  part  of  such  period  within  the  calendar 
year  1918  bears  to  the  entire  period. 

To  secure  such  a  credit  a  domestic  corporation,  must    Procedure    f >r 
pursue  the  same  course  as  that  laid  down  for  individuals, se< 
except  that  Form  1118  is  to  be  used  for  claiming  credit 
and  Form  1119  for  the  bond,  if  a  bond  is  required. 

For  the  purpose  of  section  238  a  domestic  corporation    Domestic   cor- 

•,.••  .      •,  ,    ,i  ..  •       i        *        *        •        Fcratienamliate.il 

which  owns  a  majority  of  the  voting  stock  of  a  foreign  with  foreign  cor- 
corporation  shall  be  entitled  to  credit  the  income,  war pcr< 
profits  and  excess  profits  taxes  paid  (but  not  including 
taxes  accrued)  by  such  foreign  corporation  during  the 
taxable  year  to  any  foreign  country  or  to  any  possession 
of  the  United  States  upon  income  derived  from  sources 
without  the  United  States  in  an  amount  equal  to  the 


22 

proportion  which  the  amount  of  any  dividends  (not 
deductible  under  section  234)  received  by  such  domestic 
corporation  from  such  foreign  corporation  during  the 
taxable  year  bears  to  the  total  taxable  income  of  such 
foreign  corporation  upon  or  with  respect  to  which  such 
taxes  were  paid.  But  in  no  such  case  shall  the  amount  of 
the  credit  for  such  taxes  exceed  the  amount  of  such 
dividends  (not  deductible  under  section  234)  received 
by  such  domestic  corporation  during  the  taxable  year. 

A  domestic  corporation  seeking  this  credit  must 
comply  with  the  provisions  of  subdivision  (a)  of  article 
383,  Regulations  45,  which  are  applicable  to  credits 
for  taxes  already  paid,  except  that  in  accordance  with 
article  611,  Form  1118  is  to  be  used  instead  of  Form 
1116. 
pmttafstoefe  Taxes  imposed  and  required  by  a  foreign  government 
corporation?™6"  *°  De  Paid  on  The  basis  of  dividends  declared  by  corpora- 
tions under  its  laws  are  taxes  on  the  income  of  the  indi- 
vidual stockholder  in  proportion  to  the  amount  of  stock 
held.  A  United  States  corporation,  owning  stock  in  a 
foreign  corporation,  taxed  on  this  basis,  should  report 
in  its  annual  return  of  net  income  for  the  year  in  which 
received  its  pro  rata  share  of  the  entire  dividend  de- 
clared, and  would  be  entitled  to  a  credit  of  the  amount 
of  the  tax  paid  by  the  foreign  corporation  to  the  foreign 
government  in  its  behalf. 

On  the  other  hand,  taxes  imposed  by  a  foreign  govern- 
ment on  the  net  incomes  of  corporations  organized  under 
its  laws  are  not  taxes  to  the  stockholders,  but  to  the  cor- 
poration itself,  and  no  part  thereof  would  be  a  proper 
credit  in  the  return  of  annual  net  income  of  the  recipient 
United  States  corporation,  which  would  be  taxable  on  the 
net  amount  of  the  dividend  received. 
Taxes  paid  by  The  provisions  of  law  (section  240  (c))  and  regulations 
ary.  (article  636)  for  deeming  taxes  of  a  foreign  subsidiary  cor- 

poration to  have  been  paid  by  the  domestic  parent  cor- 
poration, apply  only  to  taxes  paid  by  such  foreign  sub- 
sidiary. Taxes  accrued  against  such  foreign  subsidiary 
are  expressly  excluded  from  its  application.  Therefore, 
under  the  statute,  taxes  which  have  accrued  against  a 
foreign  subsidiary,  but  which  have  not  actually  been  paid 
by  it,  can  not  be  included  in  the  taxes  for  which  a  domes- 
tic parent  corporation  is  entitled  to  take  credit  under 
section  238  of  the  statute. 


23 

A  domestic  corporation  which  owns  a  majority  of  the  credit  under 
voting  stock  of  a  foreign  corporation  is  not  entitled  tORevemw  Act  of 
credit  under  section  240(c)  for  income,  war  profits  and 
excess  profits  taxes  paid  by  such  foreign  corporation  to 
any  foreign  country  or  possession  of  the  United  States, 
which  are  not  actually  paid  within  the  taxable  year  of  the 
domestic  corporation  for  which  the  credit  is  claimed. 

Income  and  profits  taxes  paid  to  the  Philippine  Govern-    Taxes  paid  to 

-  -  .  .  ,..  P    .       Philippine    Gov- 

ment   by  a  domestic  corporation  deriving  part  01   its  eminent. 
income  from   sources  in  the  Philippine   Islands  are  an 
allowable  credit  against  taxes  due  to  the  United  States. 

In  case  credit  has  been  given  for  taxes  accrued,  or  a    Redctcrmina- 

.  i  i»  i       i  ,       -i  •    tion  of  tax  when 

proportionate  share  thereof,  and  the  amount  that  is  credit  taken 
actually  paid  on  account  of  such  taxes,  or  a  proportionate 
share  thereof,  is  not  the  same  as  the  amount  of  such  credit, 
or  in  case  any  tax  payment  credited  is  refunded  in  whole 
or  in  part,  the  taxpayer  shall  immediately  notify  the 
Commissioner.  The  Commissioner  will  cause  such  tax- 
payer's income  tax  for  the  year  or  years  for  which  the 
incorrect  credit  was  given  to  be  redetermined  and  the 
amount  of  tax,  if  any,  due  by  reason  of  such  redeter- 
mination shall  be  paid  by  the  taxpayer  upon  notice  and 
demand  by  the  collector.  If  it  develops  that  an  over- 
payment has  been  made  the  amount  overpaid  shall  be 
credited  against  any  income  or  profits  taxes  or  install- 
ments thereof  then  due  from  the  taxpayer  under  any 
other  return,  and  any  balance  of  such  amount  shall  bo 
immediately  refunded. 

CREDITS    ALLOWED    CORPORATIONS   IN   COM- 
PUTING INCOME  TAX. 

Sec.  23G.  That  for  the  purpose  only  of  the  tax  imposed  by  section  230    S  c  c  t  i  o  n  230, 
there  shall  be  allowed  the  following  credits:  ^'cm10  Act  °' 

(a)  *    *    * 

(b)  The  amount  of  any  taxes  imposed  by  Title  III  for  the  same 
taxable  year:  Provided,  That  in  the  case  of  a  corporation  which  makes 
return  for  a  fiscal  year  beginning  in  1917  and  ending  in  1918,  in  com- 
puting the  tax  as  provided  in  subdivision  (a)  of  section  205,  the  tax 
computed  for  the  entire  period  under  Title  II  of  the  Revenue  Act  of 
1917  shall  be  credited  against  the  net  income  computed  for  the  entire 
period  under  Title  I  of  the  Revenue  Act  of  1916,  as  amended  by  the 
Revenue  Act  of  1917,  and  under  Title  I  of  the  Revenue  Act  of  1917, 
and  the  tax  computed  for  the  entire  period  under  Title  III  of  this  Act 
at  the  rates  prescribed  for  the  calendar  year  1918  shall  be  credited 
against  the  net  income  computed  for  the  entire  period  under  this 
title;  and 


24 

i»?ati!ons.ic  cor'  After  ascertaining  the  net  income  of  a  domestic  cor- 
poration it  is  allowed  as  a  credit  against  such  net  income 
before  the  application  of  the  income  tax  rate,  in  addition 
to  other  credits  not  specified  here,  the  amount  of  any  war 
profits  and  excess  profits  tax  assessed  or  to  be  assessed 
for  the  same  taxable  year.  This  credit  is  to  be  applied 
against  net  income,  whereas  the  credit  for  foreign  income, 
war  profits,  and  excess  profits  taxes  provided  in  section 
238  is  to  be  applied  against  the  total  amount  of  tax  due. 
Foreign  corpo-  The  above  credit  is  also  allowed  in.  the  return  of  a 
foreign  corporation  of  its  income  from  sources  within  the 
United  States. 

with^caf^ftar     ^n  computing  the  tax  attributable  to   the  calendar 

ending  g  191S.  year  1917  the  net  income  computed  for  the  entire  period 
under  Title  I  of  the  Kevenue  Act  of  1916,  as  amended, 
and  Title  I  of  the  Revenue  Act  of  1917  shall  be  credited 
with  the  excess  profits  tax  computed  for  the  entire  period 
under  Title  II  of  the  Revenue  Act  of  1917.  In  com- 
puting the  tax  attributable  to  the  calendar  year  1918  the 
net  income  computed  for  the  entire  period  under  the 
Revenue  Act  of  1918  shall  be  credited  with  the  war 
profits  and  excess  profits  tax  computed  for  the  entire 
period  under  Title  III  of  the  statute  at  the  rates  pre- 
scribed for  1918.  See  articles  591  and  1622.  The 
amount  of  tax  previously  paid  by  the  taxpayer  for  such 
fiscal  year  shall  be  credited  toward  the  payment  of  the 
total  tax  imposed  for  such  fiscal  year  by  the  Revenue  Act 
of  1918. 
Penalty  for  de-     The   addition  to   tax   authorized   to   be   assessed  by 

fraud.  section  3176,  Revised  Statutes,  as  amended,  on  delin- 

quent or  false  or  fraudulent  returns  is  to  be  considered  a 
penalty  and  not  a  tax  except  for  purposes  of  collection. 
Such  an  addition  to  tax  made  on  excess  profits  tax 
returns  is  not  an  allowable  credit  in  arriving  at  the  net 
income  subject  to  income  tax. 

CREDIT  FOR  EXCESS  TAXES  PAID. 

Section  252,  Sec.  252.  That  if,  upon  examination  of  any  return  of  income  made 
i9i8.enue  °  °  pursuant  to  this  Act,  the  Act  of  August  5,  1909,  entitled  "An  Act  to 
provide  revenue,  equalize  duties,  and  encourage  the  industries  of  the 
United  States,  and  for  other  purposes,"  the  Act  of  October  3, 1913,  en- 
titled "An  Act  to  reduce  tariff  duties  and  to  provide  revenue  for  the 
Government,  and  for  other  purposes, "  the  Revenue  Act  of  1916,  as 
amended,  or  the  Revenue  Act  of  1917,  it  appears  that  an  amount  of 
income,  war  profits  or  excess  profits  tax  has  been  paid  in  excess  of 
that  properly  due,  then,  notwithstanding  the  provisions  of  section  3228 


25 

of  the  Revised  Statutes,  the  amount  of  the  excess  shall  be  credited 
against  any  income,  war  profits  or  excess  profits  taxes,  or  installment 
thereof,  then  due  from  the  taxpayer  under  any  other  return,  and  any 
balance  of  such  excess  shall  be  immediately  refunded  to  the  taxpayer: 
Provided,  That  no  such  credit  or  refund  shall  be  allowed  or  made  after 
five  years  from  the  date  when  the  return  was  due,  unless  before  the  ex- 
piration of  such  five  years  a  claim  therefor  is  filed  by  the  taxpayer. 

Any  amount  of  income,  war  profits  or  excess  profits    ciaim  for  credit 

...  ,  .        ,  ,  r  ..  cf  tax  erroneously 

tax  paid  in  excess  of  that  properly  due  snail  be  credited  collected. 
against  any  such  taxes  due  from  the  taxpayer  under 
any  other  return.     To  obtain  such  credit  the  taxpayer 
should  proceed  as  follows : 

(1)  Where  the  credit  demanded  is  equal  to  or  less 
than  any  outstanding  assessment  of  tax,  a  taxpayer 
desiring  to  obtain  such  credit  shall  file  with  the  collector 
for  the  district  in  which  his  original  return  was  filed  a 
claim  on  Form  47-A,  which  shall  be  sworn  to  and  shall 
contain  the  following  statements:  (a)  Business  engaged 
in  by  claimant;  (b)  character  of  assessment;  (c)  amount 
of  tax  paid  and  for  what  taxable  year;  (d)  portion  of  tax 
under  (c)  claimed  as  a  credit;  (e)  unpaid  assessment 
against  which  credit  is  asked  and  for  what  taxable  year; 
and  (/)  all  facts  regarding  the  overpayment. 

(2)  Where  the  amount  claimed  as  a  credit  is  greater 
than  the  outstanding  assessment  of  tax,  a  taxpayer 
desiring  to  obtain  such  credit  and  the  refund  to  which 
he  is  entitled  shall  file,  in  addition  to  the  claim  for  credit 
required  to  be  made  on  Form  47-A  for  the  amount  of 
the  outstanding  assessment,  a  claim  for  refund  of  the 
overpayment  in  excess  of  the  credit.  See  article  1036. 
This  claim  for  refund  may  be  attached  to  the  claim  for 
credit  or  it  may  be  separately  filed  with  the  Commis- 
sioner. All  the  facts  regarding  the  total  overpayment 
should  be  stated  in  the  claim  for  refund  and  a  reference 
made  to  such  claim  in  the  claim  for  credit. 

Upon  receipt  of  a  claim  for  credit  on  Form  47-A,  the  ,^cti°"  ?.n 
collector  shall  certify  thereon  the  required  information 
concerning  all  outstanding  assessments  and  payments 
covered  thereby  and  shall  note  on  his  records  that  a 
claim  for  credit  has  been  filed.  He  shall  thereupon 
transmit  the  claim  to  the  Commissioner.  Due  notice 
will  be  given  the  collector  and  the  taxpayer  of  the  action 
taken  on  the  claim.  A  schedule  of  credit  claims  on 
Form  7220-A  will  be  transmitted  to  the  collector  once  a 
month  and  formal  credit  shall  be  taken  by  the  collector 
at  that  time.     If  a  claim  is  allowed  against  additional 


26 

taxes  due  for  other  years,  but  such  other  taxes  have  not 
yet  been  assessed,  only  the  amount  of  the  excess  of  such 
taxes  over  the  overpayment  shall  be  assessed,  or  the 
excess  of  the  overpayment  over  such  other  taxes  due  shall 
be  refunded,  as  the  case  may  be.  A  taxpayer  desiring  to 
convert  a  claim  for  refund  previously  filed  into  a  claim 
for  credit  may  file  with  the  collector  a  claim  on  Form 
47-A,  referring  in  it  to  such  claim  for  refund.  Upon  its 
receipt  by  the  Commissioner  the  claim  for  credit  will  be 
attached  to  the  claim  for  refund  and  will  be  adjusted  in 
the  same  manner  as  if  the  taxpayer  had  originally  filed 
the  claim  for  credit.  The  effective  date  of  filing  of  the 
claim  for  credit  shall  be  the  actual  date  of  filing  such 
claim  with  the  collector.  The  filing  of  a  claim  for  credit 
against  a  tax  due  under  another  return  shall  be  subject 
to  the  same  rules  with  respect  to  the  addition  of  interest 
and  penalties  as  if  the  taxpayer  had  filed  a  claim  for 
abatement  of  the  tax  against  which  credit  is  desired. 
See  articles  1003  and  1006. 

ci^mTorc/e^t118  Income  taxes  are  assessed  for  specific  periods  and  maj' 
be  abated  only  if  illegally  or  erroneously  assessed. 
Crediting  the  amount  of  a  previous  overpayment  against 
taxes  presently  due  has  the  force  and  effect  of  an  order 
of  abatement  and  wipes  out  and  cancels  the  assessment 
pro  tanto.  Such  a  credit  can  not  be  made  until  the  facts 
have  been  carefully  examined  and  the  validity  of  the 
credit  approved  by  the  Commissioner.  This  does  not 
mean,  however,  that  a  claim  for  credit  has  no  effect  until 
approved.  The  claim  for  credit  may  have  precisely  the 
same  effect  as  a  claim  for  abatement;  that  is,  by  for- 
bearance of  the  collector  it  may  suspend  collection  until 
it  is  acted  on  by  the  Commissioner.  If  approved,  credit 
is  then  given  relieving  both  the  collector  and  the  taxpayer 
from  further  liability.  If  rejected,  interest  is  to  be  paid 
upon  the  amount  suspended  from  the  time  it  was  due. 
credit  of  over-     In  filing  returns  for  prior  years  taxpayers  reported 

on   stock    divi- dividends  received,  including  both  cash  and  stock  divi- 

dends.  CJ 

dends,  without  segregation.  It  will  therefore  be  neces- 
sary for  the  Department  to  have  specific  information, 
verified  by  the  corporations  declaring  the  dividends,  as 
to  the  amount  of  dividends  distributed  to  each  taxpayer, 
the  year  in  which  the  profits  distributed  were  earned,  a 
statement  disclosing  all  details  of  subsequent  sales  of  the 
shares  in  order  that  the  amount  of  credit  allowable  and 


27 

the  validity  of  the  claim  may  be  correctly  and  justly 
determined. 

In  accordance  with  this,  the  taxpayer  should  preset 
to  the  collector  formally  a  claim  for  credit  for  any  over- 
payment of  taxes  in  prior  years  on  the  regular  form  for 
that  purpose  (Form  47-A)  and  on  this  form  must  be  set, 
forth  the  full  details  of  dividends  received  and  taxes  paid 
thereon.  This  claim  must  be  accompanied  by  a  state- 
ment or  certificate  from  the  corporation  distributing  the 
dividends,  showing  the  amount  distributed  to  the  tax- 
payer and  the  years  in  which  profits  distributed  were 
earned. 

Taxpayers  on  complying  with  these  requirements  will 
be  permitted  by  the  collectors  to  credit  the  amounts  due 
them  against  any  installment  of  taxes  remaining  unpaid. 
In  case  the  credit  to  which  the  taxpayer  is  entitled  ex- 
ceeds the  amount  of  taxes  remaining  unpaid,  a  claim  for 
refund  of  the  difference  may  be  filed. 

A  claim  for  credit  on  Form  47-A  for  tax  paid  on 
stock  dividends  is  to  be  accepted  as  a  suspension  of  im- 
mediate collection  of  tax  due  only — 

(1)  Against  income  or  income  and  excess  profits  taxes 
due  and  unpaid. 

(2)  If  amount  claimed  as  a  credit  does  not  exceed  the 
amount  of  tax  collected  on  the  stock  dividend  less  any 
additional  tax  due  and  unpaid  upon  the  sale  of  stock 
received  as  a  dividend  or  stock  upon  which  the  dividend 
was  declared.  (The  basis  for  determining  the  gain  or  loss 
upon  the  sale  of  stock  received  as  a  dividend  is  stated 
in  Regulations  45,  article  1547,  as  amended  by  Treasury 
Decision  3059.) 

(3)  When  accompanied  by  an  affidavit  of  the  taxpayer 
(supported  by  statements  from  the  corporation  which 
distributed  the  dividends  as  to  the  amount  distributed  to 
the  taxpayer  and  years  in  which  the  profits  distributed 
were  earned)  covering  the  following  information: 

(a)  Whether  the  dividend  consists  of  stock  of  the  cor- 
poration distributing  the  dividend  to  the  taxpayer  or  of 
stock  of  another  corporation  acquired  by  the  distributor. 

(b)  The  name  of  each  corporation  declaring,  the  decla- 
ration of,  and  the  date  of  receipt  by  the  taxpayer  of,  the 
stock  dividends,  the  tax  on  which  was  paid  and  is  covered 
by  the  claim. 


28 

(c)  The  year  in  which  the  stock  dividend  was  included 
in  the  taxpayer's  return  of  income. 

(d)  The  number  of  shares  the  taxpayer  received  and 
the  value  placed  upon  the  dividend  in  the  return.  (If 
no  sale  of  stock  was  made,  the  taxpayer  need  not  furnish 
the  following  information.) 

(e)  If  any  sale  has  been  made  of  stock  of  the  corpora- 
tion declaring  the  dividends,  whether  the  stock  be  that 
acquired  by  a  dividend,  or  upon  which  the  dividend  was 
declared,  state — 

(1)  The  number  of  shares  sold. 

(2)  The  selling  price. 

(3)  The  date  or  dates  of  sale. 

(4)  The  portion,  if  any,  of  the  selling  price  included 
as  taxable  profit  in  the  return  of  net  income  for  the  year 
the  sale  was  made  and  the  item  in  the  return  under  which 
the  amount  was  reported. 

(/)  State  how  many  shares  of  stock  the  taxpayer 
owned  at  the  time  he  received  the  first  stock  dividend; 
how  much  that  stock  cost  the  taxpayer,  and  the  date  the 
stock  was  acquired.  (If  acquired  prior  to  Mar.  1,  1913, 
state  its  value  on  that  date  and  manner  of  determining 
the  value.) 

(g)  State  separately  the  dates  from  March  1,  1913, 
upon  which  you  received  stock  dividends,  the  number 
of  shares  received  on  each  date,  and  the  names  of  the 
corporations  distributing  the  dividends. 

The  receipt  or  canceled  check  covering  the  payment 
of  tax  involved  in  the  claim  should  be  attached  to  the 
claim. 
by°membe™e!of     Returns  for  1918  were  filed  for  a  partnership  and  its 
fa™erWh\Cncor-memDers  m  accordance  with  the  Revenue  Act  of  1917, 
porated.  prior  to  the  passage  of  the  Revenue  Act  of  1918,  and  tax 

paid  accordingly.  The  partnership  was  incorporated 
prior  to  July  1,  1919,  and  elected  to  be  taxed  as  a  cor- 
poration under  the  provisions  of  paragraph  3,  section 
330,  Revenue  Act  of  1918.  Amended  returns  for  1918 
showing  overpayment  of  tax  were  filed  by  the  partners. 
There  is  no  provision  in  the  law  whereby  either  the 
tax  paid  by  the  partnership  or  any  excess  tax  paid  by 
the  partners  may  be  credited  against  any  tax  liability 
of  the  successor  corporation  for  any  year.  Remedy 
may  be  sought  only  by  the  partnership  and  the  individual 
members  thereof  filing  claims  for  the  refunding  of  any 
excess  tax  paid. 


29 

The  tax  imposed  on  undistributed  net  income  of  a  corpo-  ^J™  iS?dist?lb- 
ration  by  section  10(b)  of  the  Act  of  September  8,  1916,${f£ettincome' 
as  amended  by  the  Act  of  October  3,  1917,  is  held  to  be 
an  income  tax  within  the  meaning  of  section  252  of  the 
Revenue  Act  of  1918  and  any  overpayment  of  such  tax 
may.  therefore,  be  credited  against  an  additional  amount 
of  income  tax  due  from  the  taxpayer  within  the  statutory 
limitation. 

It  has  been  suggested  that  under  the  provisions  of abi^'t^wSE 
section  252  of  the  Revenue  Act  of  1918  the  taxpayer fXc  j^'J 
should  be  allowed  a  credit  for  any  amount  claimed  in amo,mt  due- 
good  faith  to  have  been  erroneously  paid  against  taxes 
due  from  him  under  any  other  return,  pending  the  de- 
cision upon  such  claim.  Such  procedure  is  manifestly 
not  authorized  by  said  section.  It  provides  only  for  the 
allowance  of  the  credit  when  "  it  appears  that  an  amount 
of  income,  war  profits  or  excess  profits  tax  has  been 
paid  in  excess  of  that  properly  due."  If  this  phrase 
standing  by  itself  be  capable  of  more  than  one  interpre- 
tation, its  interpretation  here  is  fixed  by  the  following 
provision  that  "The  amount  of  the  excess  shall  be 
credited  against  any  income,  war  profits  or  excess 
profits  taxes  or  installments  thereof  then  due  from 
the  taxpayer  under  any  other  return."  It  is  only  the 
amount  of  the  excess  which  can  be  credited  against 
assessments  upon  another  return  and  the  amount  of  the 
excess  can  only  be  known  when  the  merits  of  the  claim 
for  refund  have  been  determined.  It  is  clear  then  that 
the  word  "appears"  as  used  in  this  section  is  equivalent 
to  "has  been  ascertained.' '  This  section,  therefore, 
authorizes  the  credit  only  of  the  amount  of  taxes  actually 
ascertained  to  have  been  paid  in  excess  of  those  due 
against  taxes  due  upon  any  other  return. 

Excess  profits  tax  paid  by  a  partnership  with  respect laf  pa?d  by'paVt- 
to  income  received  during  1918  can  not  be  applied  as[}f™j£  ou  ms 
a  credit  against  tax  due  from  the  individual  members 
for  the  taxable  year  1918.     In  such  cases  claim  for  re- 
fund on  Form  46  should  be  filed  by  the  partnership. 


SCHEDULE  OF  TAXES 


Schedule  of  taxes  imposed  by  Titles  V,  VI,  VII,  VIII,  IX,  X,  XI,  and  XII,  Revenue 
Act  of  1918,  which  are  deductible  under  sections  214  (a)  3  and  234  (a)  3. 


Tax  deductible 
by- 


Tax  levied 
upon — 


Rate  of  tax. 


Explanation. 


Sec- 
tion 
of 
1918 
Act. 


1  cent  on  each  20  cents 
or  fraction  thereof  of 
amount  paid. 


Fortransportationbetweenpointsinthe 
United  States  of  any  package,  parcel, 
orshipment  by  express  via  rail,  water, 
or  any  form  of  "mechanical  motor  power 
when  in  competition  with  express  by 
rail  or  water  and  a  like  tax  on  the 
amount  paid  for  such  transportation 
within  the  United  States  of  property 
transported  from  a  point  without  the 
United  States  to  a  point  within  the 
United  States. 


For  each  telephone,  telegraph,  cable,  or 
radio  dispatch,  or  conversation  origi- 
nating in  the  United  States  the  trans- 
mission charge  for  which  is  more  than 
14  cents  and  not  more  than  50  cents. 


Same  as  preceding,  where   charge  ex- 
ceeds 50  cents.    _ 


Person,  corpo- 
ration, or  or- 
ganization 
paying  the 
tax. 


Use  of  public 
utilities. 


3  per  cent  of  amount 
paid. 


Fortransportation  of  property  by  freight 
from  one  point  in  the  United  States  to 
another  by  rail  or  water  or  by  any 
form  of  mechanical  motor  power  when 
in  competition  with  carriers  by  rail  or 
water  and  a  like  tax  on  the  amount 
paid  for  such  transportation  within 
the  United  States  of  property  trans- 
ported from  a  point  without  the 
United  States  to  a  point  within  the 
United  States. 


per  cent  of  amount 
paid. 


For  transportation  of  persons  (not  in- 
cluding amount  paid  for  commutation 
or  season  tickets  for  trips  less  than  30 
miles,  or  where  the  fare  does  not  ex- 
ceed 42cents).    (Alsoseesec.500(c).) 

For  seats,  berths,  and  staterooms  in 
parlor  cars,  sleeping  cars,  or  on  vessels, 
used  in  connection  withtransportation 
upon  which  tax  is  imposed  by  subdi- 
vision (c)  of  section  500. 

For  transportation  of  oil  by  pipe  line. 


10  per  cent  of  amount 
paid. 


For  any  leased  wire  or  talking  circuit 
special  service  furnished  by  any  tele- 
phone or  telegraph  company.  (For 
exceptions  see  sec.  500  (g)  and  (h).) 


Insurer,  agent, 
■    or  broker. 


Insurance 
business. 


8  cents  on  each  $100  or 
fractional  part  there- 
of of  face  value  of 
policy. 


(a)  Lifeinsurance.    (Seesec.503  (a).) 


1  cent  on  each  $1  or 
fractional  part  there- 
of of  premium. 


(30) 


(6)  Marine,  inland,  and  fire  insurance. 
(See  sec.  503(b).) 


(c)  Casualty  insurance.    (See sec.  503(f).) 


31 


Schedule  of  taxes  imposed  by  Titles  V,  VI,  VII,  VIII,  IX)  X,  XI,  and  XII,  Revenue 
Act  of  1918,  which  are  deductible  under  sections  214  (a)  S  and  234  (a)  3 — Continued. 


Tax  deductible 
by- 

Tax  levied 
upon— 

Rate  of  tax. 

Explanation. 

Sec- 
tion 
of 
1918 
Act. 

Doing      busi- 
ness. 

15  per  cent  of  price  for 
which  sold. 

All  beverages  derived  wholly  or  in  part 
from  cereals  or  substitutes  therefor 
and  containing  Jess  than  one-half  of  1 
per  cent  of  alcohol,  sold  in  bottles  or 
other  closed  containers. 

producer,  or 
importer. 

10  per  cent  of  price  for 
which  sold. 

All  unfermented  grape  juice,  ginger  ale, 
root  beer,  sarsaparilia,  pop,  artificial 
mineral  waters   (carbonated   or  not 
carbonate;!),  other  carbonated  waters 
or  beverages,  and  other  soft  drinks, 
sold  in  bottles  or  other  closed  contain- 
ers. 

628 

Producer,  bot- 
tler,   or   im- 
porter. 

Doing     busi- 
ness. 

2  cents  per  gallon. 

All  natural  mineral  water  or  table  waters 
sold  in  bottles  or  other  closed  contain- 
ers at  over  10  cents  per  gallon 

Purchaser. 

Soft  drinks. 

1  cent  for  each  10  cents 
or  fraction  thereof  of 
amount  paid. 

For  drinks,  commonly  known  as  soft 
drinks,  purchased  at  a  soda  fountain, 
ice  cream  parlor,  or  other  similar  place 
of  business  where  such  drinks  are  com- 
pounded; or  for  ice  cream,  ice-cream 
sodas.sundaes,  cr  other  simi'ararticles 
of  food  or  drink,  when  sold  for  con- 
sumption in  or  in  proximity  to  such 
place  of  business. 

630 

Cigars  and  cig- 
arettes man- 
ufactured in 
or  imported 
into    the 
United 
States    and 
hereafter 
sold   or  re- 
moved   for 
consumption 
or  sale  by 
the    manu- 
facturer   or 
importer. 

$1.50  per  M. 

Cigars  of  all  descriptions  made  of  tobacco 
or  any  substitute  therefor,  and  weigh- 
ing not  more  than  3  pounds  per  thou- 
sand. 

$1  per  M. 

Cigars  made  of  tobacco  or  any  substitute 
therefor,  weighing  over  3  pounds  per 
thousand  and  retailing  at  not  to  exceed 
5  cents  each. 

$0  per  M. 

Cigars  manufactured  or  imported  to  re- 
tail at  more  than  5  cents  and  not  more 
than  8  cents  each. 

$9pcrM. 

Cigars  manufactured  or  imported  to  re- 
tail at  more  than  8  cents  and  not  more 
than  15  cents  each. 

700 

1 

Manufacturer, 
or  importer. 

$12  per  M. 

Cigars  manufactured  or  imported  to  rc- 
tailat  more  than  15  cents  and  net  more 
than  20  cents  each. 

$15  per  M. 

Cigars  manufactured  or  imported  to  re- 
tail at  more  than  20  cents  each. 

$3  per  il. 

Cigarettes  made  of  tobacco  or  any  sub- 
stitute therefor,  weighing  not  more 
than  3  pounds  per  thousand    . 

$7.20  per  M. 

Cigarettes  weighing  more  than  3  pounds 
per  thousand. 

Tobacco   and 
snuff. 

13  cents  per  pound. 

Tobacco  and  snuff  manufactured  in  or 
imported  into  tho  United  States  and 
hereafter  sold  by  the  manufacturer  or 
importer,  or  removed  for  consumption 
or  sale. 

701 

S2 

Schedule  of  taxes  imposed  by  Titles  V,  VI,  VII,  VIII,  IX,  X,  XI,  and  XII.  Revenue 
Act  of  1918,  which  are  deductible  under  sections  214  (a)  3  and  234  (a)  3 — Continued. 


Tax  deductible 
by- 


Tax  levied 
upon— 


Rate  of  tax. 


Explanation. 


Sec- 
tion 
of 
1918 
Act. 


1  cent. 


On  each  package,  book,  or  set  containing 
more  than  25,  but  not  more  than  50 
papers. 


1  cent. 


Manufacturer, 
or  importer. 


Cigarette    pa- 
per. 


Containing  more  than  50,  but  not  more 
than  100  papers. 


J  cent. 


For  each  50  papers  or  fractional  part 
thereof  in  each  package  containing 
more  than  100  papers. 


1  cent. 


For  each  50  tubes  of  cigarette  papers  or 
fractional  part  thereof. 


5  per  cent  of  excess 
over  established 
price. 


Dealer  or  seller. 


Tickets  sold. 


Tickets  or  cards  of  admission  to  theaters, 
operas,  and  other  places  of  amusement 
sold  at  news  stands,  hotels,  and  places 
other  than  the  ticket  offices  of  such 
theaters,  operas,  or  other  places  of 
amusement  at  not  more  than  50  cents 
in  excess  of  the  sum  of  the  established 
price  and  the  tax  imposed  by  para- 
graph (1)  of  sec.  800(a). 


50  per  cent  of  the  ex- 
cess. 


When  sold  for  more  than  50  cents  in 
excess  of  such  sum. 


50  per  cent  of  the  ex- 
cess. 


Tickets  or  cards  of  admission  sold  by- 
managers,  proprietors,  or  employees 
of  any  opera  house,  theater,  or  other 
place  of  amusement  in  excess  of  the 
regular  or  established  price  therefor. 


Purchaser  of 
ticket  or  card 
of  admission. 


Admissions. 


1  cent. 


For  each  10  cents  or  fraction  thereof  of 
the  amount  paid  for  admission  to  any 
place,  including  admission  by  season 
ticket  or  subscription;  also  persons 
admitted  free  or  at  reduced  rates. 


Lessee  or  holder 
of  box  or  seat. 


A  dmissions. 


10  per  cent  of  amount 
for  which  similar 
box  or  seat  is  sold 
for  each  perform- 
ance at  wliich  the 
box  or  seat  is  used 
or  reserved. 


Permanent  lessee  or  holder  of  box  or  scat 
in  an  opera  house  or  any  place  of 
amusement  (in  lieu  of  the  tax  imposed 
by  paragraph  1  of  sec.  800(a).) 


■    800 


Person  paying 
for  refresh- 
ment, service 
or  merchan- 
dise. 


Admissions. 


1$  cents  for  each  10 
cents  or  fraction 
thereof  of  the  amouut 
paid. 


Amount  paid  for  admission  to  any  pub- 
lic performance  for  profit  at  any  roof 
garden,  cabaret  or  similar  entertain- 
ment where  the  charge  for  admission 
is  wholly  or  in  part  included  in  the 
price  paid  for  refreshment,  service,  or 
merchandise;  the  amount  paid  for  such 
admission  to  be  deemed  to  bo  20  per 
cent  of  the  amount  paid  for  refresh- 
ment, service,  and  merchandise. 


Person  paying 
dues  or  fees. 


Dues  and  ini- 
tiation fees. 


10  per  cent  of  amount 
paid. 


Dues  or  membership  fees  if  in  excess  oi 
$10  per  annum  or  initiation  fees  if  in 
excess  of  S10  paid  to  any  social,  athletic, 
or  sporting  club  or  organization. 


3  per  cent  of  price  for 
which  sold  or  leased. 


Automobile  trucks  and  automobile 
wagons  (including  tires,  inner  tubes, 
parts,  and  accessories  therefor,  sold  on 
or  in  connection  therewith  or  with  the 
sale  thereof). 

Chewing  gum  or  substitutes  therefor. 

Toilet  soap  and  toilet  soap  powders. 


900 


33 

Schedules  of  taxts  imposed  by  Titles  V,  VI,  VII,  VIII,  IX,  X,  XI,  and  XII,  Revenue 
Act  of  1918,  which  are  deductible  under  sections  214  (a)  3  and  234  (a)  3 — Continued. 


Tax  deductible 
by- 


Tax  levied 
upon— 


Rate  of  tax. 


Explanation. 


5  per  cent  of  price  for 
which  sold  or  leased. 


Automatic  slot-device  vending  machines 
(If  the  manufacturer,  producer,  or  im- 
porter of  any  such  machine  operates 
it  for  profit,  ho  shall  pay  a  tax  in  re- 
spect of  each  such  machine  put  into 
operation  equivalent  to  5  per  cent  of 
its  fair  market  value.) 

Candy. 

Other  automobiles  than  thoso  in  pre- 
ceding list  and  motorcycles  (includ- 
ing tires,  inner  tubes,  parts  and  acces- 
sories therefor  sold  on  or  in  connection 
therewith  or  with  the  sale  thereof), 
except  tractors. 

Photographic  films  and  plates  (other 
than  moving  picture  films). 

Pianos,  organs  (other  than  pipe  organs), 
piano  players,  graphophones,  phono- 
graphs, talking  machines,  music  boxes 
and  records  used  in  connection  with 
any  musieal  instrument,  piano  player, 
graphophone,  phonograph  or  talking 
machine. 

Portable  electric  fans. 

Thermos  and  thermostatic  bottles,  ca- 
rafes, jugs  or  other  thermostatic  con- 
tainers. 

Tires,  inner  tubes,  parts  or  accessories 
for  automobile  trucks  and  automobile 
wagons,  other  automobiles  (except 
tractors)  and  motor  cycles  sold  to  any 
person  other  than  a  manufacturer  or 
producer  of  automobile  trucks,  auto- 
mobile wagons  other  automobiles  (ex- 
cept tractors)  and  motorcycles. 


M  a  nufacturer, 
producer  or 
importer. 


Articles  sold 
or  leased  by 
the  manu- 
facturer, pro- 
ducer, or  im- 
portcr. 


10  per  cent  of  price  for 
which  sold  or  leased. 


Articles  made  of  fur  on  the  hide  or  pelt 
or  of  which  any  such  fur  is  the  compo- 
nent material  of  chief  value. 

Cameras  weighing  not  more  than  100 
pounds. 

Cigar  or  cigarette  holders  and  pipes, 
composed  wholly  or  in  part  of  meer- 
schaum or  amber,  humidors  and  smok- 
ing stands. 

Firearms,  shells,  and  cartridges,  except 
those  sold  for  the  use  of  the  United 
States,  any  State,  Territory  or  posses- 
sion of  the  United  States,  any  political 
subdivision  thereof,  the  District  of 
Columbia,  or  any  foreign  country  while 
engaged  against  tho  German  Govern- 
ment in  the  present  war. 

Hunting  and  shooting  garments  and 
riding  habits. 

Hunting  and  bowie  knives. 

Liveries  and  livery  boots  and  hats. 

Automatic  slot-devico  weighing  ma- 
chines. (If  tho  manufacturer,  pro- 
ducer or  importer  of  any  such  machine 
operates  it  for  profit,  he  shall  pay  a  tax 
in  respect  to  each  such  machine  put 
into  operation  equivalent  to  10  per 
cent  of  its  fair  market  value.) 

Tennis  rackets,  nets,  racket  covers  and 
presses,  skates,  snowshocs,  skis,  tobog- 
gans, canoe  paddles  and  cushions, 
polo  mallets,  baseball  bats,  gloves, 
masks,  protectors,  shoes  and  uniforms, 
football  helmets,  harness  and  goals, 
basket  toll  goals  and  uniforms,  golf 
bags  and  clubs,  lacrosse  sticks,  balls  of 
all  kinds,  including  baseballs,  foot- 
balls, tennis,  golf,  lacrosse,  billiard  and 
CI  balls,  fishing  rods  and  reels,  bil- 
d  and  pool  tables,  chess  and  checker 
boards,  dice,  games  and  parts  of  games 


34 

Schedules  of  taxes  imposed  by  Titles  V.  VI,  VII,  VIII,  IX,  X,  XI,  and  XII,  Revenue 
Act  of  WIS,  which  are  deductible  under  sections  214  (a)  3  and  234  (a)  3 — Continued. 


Tax  deductible 
by- 


Tax  levied 
upon— 


Rate  of  tax. 


Explanation. 


Manufacturer, 
producer,  or 
importer. 


Articles  sold 
or  leased  by 
the  manu- 
facturer,pro- 
ducer,  or  im- 
porter. 


(except  playing  cards  and  children's 
toys  and  games),  and  all  similar  articles 
commonly  or  commercially  known  as 
sporting  goods. 
Yachts  and  motor  boats  not  designed 
tor  trade,  fishing  or  national  defense; 
and  pleasure  boats  and  pleasure  canoes 
if  sold  for  more  than  $15. 


100  per  cent  of  price  for 
wnich  sold  or  leased. 


Dirk  knives,  daggers,  sword  canes  stil- 
lettos,  and  brass  or  metallic  knuckles. 


Dealer  or  seller. 


Articles  sold. 


10  per  cent  of  sale  price. 


Sculpture,  paintings,  statuary,  art  por- 
celains, and  bronzes  sold  by  any  per- 
son other  than  the  artist  to  other  than 
an  educational  institution  or  public 
art  museum. 


10  per  cent  on  amount 
in  excess  of— 
$1.00. 


Fans. 

Men's  or  boys'  silk  stockings  or  hose 


$2.00. 


Men's  and  boys'  neckties  and  neckwear. 
Men's  and  boys'  caps. 
Women's  and  misses'  silk  stockings  or 
hose. 


$3.00. 
$4.00. 


Men's  shirts. 

Umbrellas,  parasols,  and  sun  shades. 


$5.00. 


Men's  and  boys'  hats 

Men's,  women's,  misses'  and  boys'  paja- 
mas, nightgowns,  and  underwear. 

Carpets  and  rugs,  per  sq.  yd.  (See  sec. 
904(a)l.) 

Men's  waistcoats,  sold  separately  from 
suits. 


Purchaser. 


Articles  bought 
for  consump- 
tion or  use, 


$7.50. 


House  or  smoking  coats  or  jackets  and 

bath  or  lounging  robes. 
Purses,    pocketbooks,    shopping    and 

handbags. 


$10.00. 


Men's,  women's,  misses',  and  boys' 
boots,  shoes,  pumps,  and  slippers  (not 
including  shoes  or  appliances  made  to 
order  for  person  having  crippled  or  de- 
formed foot  or  ankle.) 

Picture  frames. 


$15.00. 


Kimonos,  petticoats,  and  waists. 
Women's  and  misses'  hats,  bonnets,  and 
hoods. 


$25.00. 


Valises,  traveling  bags,  suit  cases,  trav- 
eling hat  boxes,  and  fitted  toilet  cases. 


Portable    lighting    fixtures,    including 
lamps  of  all  kinds  and  lamp  shades. 


$50.00. 


Trunks. 


1  The  tax  imposed  by  sec.  904  does  not  apply  to  any  articles, enumerated  in  paragraphs  (2)  to(8), inclusive, 
Of  section  904(a),  when  made  of,  or  ornamented,  mounted  or  fitted  with  precious  metals  or  imitations 
thereof  or  ivory  or  to  any  article  made  of  fur  on  the  hide  or  pelt,  or  of  which  any  such  fur  is  the  component 
material  of  chief  value;  or  to  any  article  enumerated  in  subdivision  (17)  or  (18)  of  sec.  900. 


35 


Schedule  of  taxes  imposed  by  Titles  V,  VI,  VII,  VIII,  IX,  X,  XI,  and  XII,  Revenue 
Act  of  1918,  xohich  are  deductible  under  sections  214  (a)  3  and  234  (a)  3 — Continued. 


Tax  deductible 
by- 

Tax  levied 
upon— 

Rate  of  tax. 

Explanation. 

Sec- 
tion 
of 

1918 
Act. 

Dcalcr  or  seller. 

Articles  sold. 

5  per  cent  or  sale  price. 

Jewelry,  real  or  imitation;  pearls,  pre- 
cious and  semiprecious  stones   and 
imitations  thereof;  articles  made  of,  or 
ornamented,  mounted  or  fitted  with 
precious  metals  or  imitations  thereof 
or  ivory  (not  including  surgical  in- 
struments), watches,    clocks,    opera 
glasses,  lorgnettes, marine  glasses,  field 
glasses  and  binoculars,  when  sold  for 
consumption  or  use. 

•    905 

Lessor  or  licen- 
sor. 

Doing      busi- 
ness. 

5  per  cent  of  monthly 
earnings. 

Any  person  engaged  in  the  business  of 
leasing    or   licensing   for   exhibition, 
positive  motion  picture  films  contain- 
ing pictures  ready  for  projection,  on 
total  rentals  earned  during  preceding 
month.    (See  sec.  906.) 

903 

Purchaser. 

Articles  bought 
for  consump- 
tion or  use. 

1   cent   on  every  25 
cents     or     fraction 
thereof. 

Paid  for  perfumes,  essences,  extracts, 
toilet   waters,    cosmetics,  petroleum 
jellies,  hair  oils,  pomades,  etc.    (See 
sec.  907(a)(1)  for  full  list.) 

Pills,  tablets,  powders,  tinctures,  troches, 
lozenges,  sirups,  medicinal   cordials, 
etc.    (See  sec.  907(a)(2)   for  full  list 
and  exceptions). 

907 

Corporation. 

Doing     busi- 
ness. 

SI  .00 

Domestic  corporation  for  each  $1 ,000  of 
so  much  of  the  fair  average  value  of  its 
capital  stock  for  the  preceding  year 
ending  June  30  as  is  in  excess  of  $5,000. 

Foreign  corporation  for  each  $1 ,000  of  the 
average  amount  of  capital  employed 
in  the  transaction  of  its  business  in  the 
United  States  during  the  preceding 
year  ending  June  30. 

i  1000 

Doing     busi- 
ness. 

$10  per  annum. 

Person  carrying  on  the  business  of  oper- 
ating or  renting  passenger  automobiles 
for  hire,  each  automobile  having  a  seat- 
ing capacity  of  more  than  2  and  not 
more  than  7. 

Proprietors  of  bowling  alleys  and  billiard 
rooms;  for  each  alley  or  table. 

Broker,  propri- 
etor, or  per- 
son   doing 
business. 

$20. 

For  each  automobile,  operated  for  hire, 
having  a  seating  capacity  for  more 
than  7. 

1001 

$15. 

Proprietors  or  agents  of  all  other  public 
exhibitions  or  shows  for  money  not 
enumerated  in  sec.   1001.    (See  sec. 
1001(7).) 

$50. 

Proprietors  of  theaters,  museums,  and 
concert  halls  whero  charge  of  admis- 
sion is  made,  seating  not  more  than 
250.1 

1  Every  edifice  used  for  tho  purpose  of  dramatic  or  operatic  or  other  representations,  plays,  or  perform- 
ances, for  admission  to  which  entrance  money  is  received,  not  including  halls  or  armories  rented  or  used 
occasionally  for  concerts  or  theatrical  representations,  and  not  including  edifices  owned  by  religious,  edu- 
cational, or  charitable  institutions,  societies,  or  organizations  where  all  the  proceeds  from  admissions 
Inure  exclusively  to  the  benefit  of  persons  in  tho  military  or  naval  forces  of  the  United  States,  shall  be 
regarded  as  a  theater:  Provided.  That  in  cities,  towns,  or  villages  of  five  thousand  inhabitants  or  less  tho 
amount  of  such  payment  shall  be  one-half  of  that  above  stated:  Provided  further,  That  whenever  any 
such  edifice  is  under  lease  at  the  time  tho  tax  is  due,  the  tax  shall  be  paid  by  the  lessee  ,unlcss  otherwise 
stipulated  between  the  parties  to  the  lease. 


36 


Schedule  of  taxes  imposed  by    Titles  V,  VII,  VIII,   IX,   X,   XI,   and  XII,   Revenue 
Act  of  1918,  which  are  deductible  under  sections  214  (a)  3  and  234  (a)  3 — Continued. 


Tax  deductible 
by- 


Tax  levied 
upon— 


Rate  of  tax. 


Explanation. 


Brokers  negotiating  purchases  or  sales 
of  stocks,  bonds,  exchange,  bullion, 
coined  money,  bank  notes,  promissory 
notes,  other  securities,  produce  or 
merchandise,  for  others. 


$100. 


Brokers  having  membership  in  stock 
exchange,  produce  exchange,  board  of 
trade,  or  similar  organization  valued 
at  $2,000  or  more  but  not  over  $5,000. 

Pawnbrokers 

Proprietors  of  theaters,  museumsj  and 
concert  halls  where  an  admission 
charge  is  made  having  a  seating  ca- 
pacity of  more  than  250  and  not  over 
500.2    (See  sec.  1001  (5).) 

Proprietors  of  riding  academies 

Proprietors  of  circuses 


Broker,  propri- 
etor, or  person 
doing  busi- 
ness. 


Doing     busi- 
ness. 


$150. 


Brokers  having  membership  in  stock  or 
produce  exchange  or  board  of  trade, 
valued  at  more  than  $5,000. 

Proprietors  of  theaters,  museums,  con- 
cert halls,  etc.,  having  a  seating  ca- 
pacity exceeding  500  but  not  exceed- 
ing 800.J 


$200. 


Proprietors   of   theaters,   etc.,   seating 
capacity  exceeding  800. 2 


$1,000. 


Every  person  carrying  on  the  business 
of  a  brewer,  distiller,  wholesale  liquor 
dealer,  retail  liquor  dealer,  wholesale 
dealer  in  malt  liquor,  retail  dealer  in 
malt  liquor,  or  manufacturer  of  stills, 
as  defined  in  sec.  3244,  as  amended, 
and  sec.  3247  of  the  Revised  Statutes, 
in  any  State,  Territory,  or  District  of 
the  United  States  contrary  to  the  laws 
of  such  State,  Territory,  or  District, 
or  in  any  place  therein  in  which  carry- 
ing on  such  business  is  prohibited  by 
local  or  municipal  law. 


$4. 


Manufacturers  of  cigars  whose  annual 
sales  do  not  exceed  50,000  cigars. 


$6. 


The   manufac- 
turer. 


Doing  busi- 
ness, tax 
based  on 
salesf or  pre- 
ceding year 
ended  June 
30. 


Manufacturers  of  cigars  whose  annual 
sales  exceed  50,000  but  do  not  exceed 
100,000  cigars. 

Manufacturers  of  tobacco  whose  annual 
sales  do  not  exceed  50,000  pounds. 


Manufacturers  of  cigars  whose  annual 

sales  exceed  100,000  but  do  not  exceed 

200,000  cigars. 
Manufacturers  of  tobacco  whose  annual 

sales  exceed  50,000  but  do  not  exceed 

100,000  pounds. 


Manufacturers  of  cigars  whose  annual 

sales  exceed  200,000  but  do  not  exceed 

400,000  cigars. 
Manufacturers  of  tobacco  whose  annual 

sales  exceed  100,000  but  do  not  exceed 

200,000  pounds. 

2  Every  edifice  used  for  the  purpose  of  dramatic  or  operatic  or  other  representations,  plays,  or  perform- 
ances, for  admission  to  which  entrance  money  is  received,  not  including  halls  cr  armories  rented  or  used 
occasionally  for  concerts  or  theatrical  representations,  and  not  including  edifices  owned  by  religious,  edu- 
cational, or  charitable  institutions,  societies,  or  organizations  where  all  the  proceeds  from  admissions 
inure  exclusively  to  the  benefit  of  persons  in  the  military  or  naval  forces  of  the  United  States,  shall  bo 
regarded  as  a  theater:  Provided,  That  in  cities,  towns,  or  villages  of  five  thousand  inhabitants  or  less  the 
amount  of  such  payment  shall  be  one-half  of  that  above  stated:  Provided  further,  That  whenever  any 
such  edifice  is  under  lease  at  the  time  the  tax  is  due,  the  tax  shall  be  paid  by  the  lessee,  unless  otherwise 
stipulated  between  the  parties  to  the  lease. 


37 

Schedules  of  taxes  imposed  by  Titles  V,  VI,  VII,  VIII,  IX,  X,  XI,  and  XZi,  Revenue 
Act  of  1918,  which  are  deductible  under  sections  214  (a)  3  and 234  (a)  3 — Continued. 


Tax  deductible 
by- 


Tax  levied 
upon— 


Rate  of  tax. 


Explanation. 


The   manufac- 
turer. 


Doing  busi- 
ness, tax 
based  on 
sales  for  pre- 
ceding year 
ended  June 
30. 


$21. 


Manufacturers  of  cigars  whose  annual 
sales  exceed  400,000  cigars,  plus  10  cents 
per  thousand,  or  fraction  thereof,  over 
400,000  cigars. 

Manufacturers  of  tobacco  whose  annual 
sales  exceed  200,000  pound?,  plus  16 
cents  t>er  thousand  pounds,  or  frac- 
tion thereof  oyer  200,000. 


6  cents. 


Per  10,000,  or  fraction  thereof,  of  ciga- 
rettes, including  small  cigars  weigh- 
ing not  more  than  3  pounds  per  thou- 
sand. 


Person, 
ration 
ganiz 
Sayltal 
tax. 


corpo- 
or  or- 
ation 
the 


Use  of  yachts, 
power  boats, 
etc. 


SI  per  foot,  lencth  not 
over  50  feet;  $2  per 
foot,  length  over  50 
and  not  over  100 
feet;  $4  per  foot, 
length  over  100  feet. 


Yachts,  pleasure  boats,  power  boats, 
motor  Doats  with  fixed  engines,  and 
sailing  vessels  of  over  5  net  tons, 
not  used  exclusively  for  trade,  fishing, 
or  national  dofensc*  nor  built  accord- 
ing to  plans  and  specifications  ap- 
proved by  the  Navy  Department. 


110. 


Motor  boats  of  not  over  5  not  tbn>  with 
fixed  engines. 


Opium  and 
preparations 
containing 
opium  or  its 
derivatives. 


1  cent  per  ounce  or 
any  fraction  of  an 
ounce  in  a  package. 


Opium,  coca  leaves,  or  any  compound, 
salt,  derivative,  or  preparation  there- 
of, produced  in  or  imported  into  the 
United  States  and  sold  or  removed 
for  consumption  or  sale. 


$24  per  annum. 


Importer,  pro- 
ducer, manu- 
fact  urcr, 
dealer,  or  dis- 
penser. 


Every  person  who  imports,  manufac- 
tures, produces,  or  compounds  opium 
or  coca  leaves  or  any  compound,  man- 
ufacture, salt,  derivative,  or  prepara- 
tion thereof. 


Doing     busi- 
ness. 


$12  per  annum. 
$G  per  annum. 


Wholesale  dealers  in  the  aforesaid  drugs 
or  preparations. 


Retail  dealers. 


$3  per  annum. 


Physicians,  dentists,  veterinary  sur- 
geons, and  biher  practitioner's  law- 
fully entitled  to  distribute,  dispense, 
give  away,  or  administer  any  bf  flic 
aforesaid  drags  to  patients  in  the 
course  of  their  professional  practice. 


Tarcei  post 
packages. 


1  cent  on  each  25  cents 
postage  or  fraction 
thcrejf. 


Parcel  post  packages  transported  from 
one  point  in  the  United.  States  to  an- 
other, postage  amounting  to  25  cents 
or  more. 


2  cents  per  share. 


Capital  stock  without  par  cr  face  value 
sales  cr  transfers. 


Persons  against 
whom  the 
tax  is  levied. 


Capital  stock. 


2  cents  on  each  $100 
face  value  or  frac- 
tion thereof. 


Capital  stock:  Sales  or  transfers,  agree- 
ments to  sell,  memoranda  of  sales  or 
deliveries,  or  transfers  of  legal  title  to 
shares  or  certificates  of  stock,  etc. 
(See  sec  1107,  subdiv  4.) 


Produco. 


2  cents  on  each  $100 
in  value  of  merchan- 
dise and  each  $100 
or  fraction  thereof  in 
excess  of  $100. 


Produce,  sales  of,  on  exchange.  Upon 
each  sale  or  agreement  to  sell  (not  in- 
cluding so-called  scratch  sales).  Ex- 
ceptions: Transfers  to  cle.;ring  house 
after  tax  has  been  paid  r.nd  salcj  for 
immediate  or  prompt  delivery. 


38 


Schedule  of  taxes  imposed  by  Titles  V,  VI,  VII,  VIII,  IX,  X,  XI,  and  XII,  Revenue 
Act  of  1918,  tvhich  are  deductible  under  sections  214  (a)  3  and  234  (a)  3 — Continued. 


Tax  deductible 
by- 

Tax  levied 
upon— 

Rate  of  tax. 

Explanation. 

Sec- 
tion 
of 
1918 
Act 

Drafts  or 
checks. 

2  cents. 

Drafts   or   checks    (payable   otherwise 
thin  fxc  sight  or  on  demand)  upon 
their  acceptance  or  delivery  within 
the  United  States,  whichever  is  prior, 
promissory  notes,  except  bank  notes 
issued  for  circulation,  and  for  each  re- 
newal of  the  same,  for  a  sum  not  ex- 
ceeding $100;  also  2  cents  for  eich 

■    additional    $100    or    fractional    part 
thereof. 

Insurance  pol- 
icies. 

3  cents  on  each  $1  of 
premium     charged 
under  each  policy  of 
insurance.    (See  sec. 
1107,  subdiv.  15.) 

Policy  of  insurance  or  its  equivalent  is- 
sued to  or  for  or  in  the  name  of  a  domes- 
tic corporation  or  partnership  or  an 
individual   resident   of   the   United 
States  by  any  foreign  corporation  or 
partnership  or  any  individual  not  a 
resident  of  the  United  States,  when 
such  policy  or  other  instrument  is  not 
signed  or  countersigned  by  an  officer  or 
agent  of  the  insurer  in  a  State,  Terri- 
tory or  district  of  the  United  States 
within  which  such  insurer  is  author- 
ized to  do  business. 

Capital  stock. 

5  cents  per  share. 

Capital stockissued;  without  face  value. 

5  cents  on  each  $100 
actual  value  and  on 
each  $100  or  fraction 
thereof  in  excess  of 
$100. 

Capital  stock  issued  without  face  value: 
actual  value  equal  to  or  in  excess  of 
$100  per  share. 

Persons  against 
whom  the 
tax  is  levied. 

5  cents  on  each  $100 
face  value  or  fraction 
thereof. 

Capital  stock;  original  issue,  whether  or- 
ganization or  reorganization. 

,  1107 

Bonds,  etc. 

5  cents  on  each  $100 
face  value  or  fraction 
thereof. 

Bonds,  debentures,  or  certificates  of  in- 
debtedness issued.    (See sec.  1107,  sub- 
div. 1  of  schedule  A.) 

Cards. 

8  cents  per  pack. 

Playing  cards  (not  over  54  cards  per  pack) . 

Proxies. 

10  cents. 

Proxy  for  voting  at  election  of  officers  or 
other  meetings  of  corporation. 

Power  of  at- 
torney. 

25  cents. 

(See  sec.  1107,  subdiv.  12.) 

Entry  of  goods 
at    custom- 
house. 

25  cents  when  not  ex- 
ceeding $100  in  value. 

Entry  of  goods,  wares,  or  merchandise  at 
any  customhouse,  either  for  consump- 
tion or  warehousing. 

Deeds,  etc. 

50  cents  on  value  be- 
tween $100  and  $500 
and  for  each  addi- 
tional $500  or  frac- 
tion thereof. 

Conveyances:  Deed,  instrument,  or  writ- 
ing whereby  any  lands,  tenements,  or 
other  realty  shall  be  granted,  assigned, 
or  otherwise  conveyed,  exclusive  of  the 
value  of  any  lien  or  incumbrance  re- 
maining thereon  at  the  time  of  sale. 

Withdrawal 
goods   from 
bonded 
warehouse. 

50  cents. 

Entry  for  withdrawal  of  any  goods  or 
merchandise   from   customs   bonded 
warehouse. 

Entry    goods 
at    custom- 
house. 

50  cents  on  value  be- 
tween $100  and  $500. 

Entry  of  goods,  wares,  or  merchandise  at 
any  customhouse  either  for  consump- 
tion or  warehousing. 

39 

Schedule  of  taxes  imposed  by  Titles  V,  VI,  VII,  VIII,  IX,  X,  XI,  and  XII.  Revenue 
Act  of  1918,  which  are  deductible  under  sections  214  (a)  3  and  234  (a)  3 — Continued. 


Tax  deductible 
by- 

Tax  levied 
upon— 

Rate  of  tax. 

Explanation. 

Sec- 
tion 
of 

1918 
Act. 

Bonds,  surety 
policies,  etc. 

50  cents. 

Bonds,  indemnity,  and  surety  policies 
guaranteeing  realty  titles  and  fidelity 
and  guaranty  insurance.    (Also  see 
sec.  1107,  schedule  A,  subdiv.  2.) 

Entry    goods 
at    custom- 
house. 

$1  on  value  exceeding 
$500. 

Entry  of  goods,  wares,  or  merchandise  at 
any  customhouse  either  for  consump- 
tion or  for  warehousing. 

Persons  against 
whom  the  tax 
is  levied. 

Passage   tick- 
ets. 

SI  en  ccst  over  $10  aud 
not  exceeding  $30. 

Passage  ticket  one  way  or  round  trip  for 
each  passenger,  sold  or  issued  in  United 
States  for  passage  by  any  vessel  to  a 
port  or  place  not  in  the  United  States, 
Canada,  or  Mexico. 

1107 

$3  on  cost  over  $30  and 
not  exceeding  $G0. 

Same  as  preceding. 

$5  en  cost  over  $00. 

Same  as  preceding. 

Employer. 

Employment 
Of  child  la- 
bor. 

10  per  cent  of  profits 
computed  in  accord- 
ance with  Title  XII. 

Mine  or  quarry  in  United  States  in  which 
children  under  the  age  of  16  years  have 
been  employed  or  permitted  to  work 
during  any  portion  of  the  taxable  year. 

Mill,  cannery,   workshop,   factory,   or 
manufacturing  establishment  in  the 
United  States  in  which  children  under 
the  age  of  14  years  have  been  employed 
or  permitted  to  work,  or  children  be- 
tween ages  of  14  and  16  have  been  em- 
ployed or  permitted  to  work,  more 
than  8  hours  in  any  day  or  more  than 

6  days  in  any  week  or  after  the  hour  of 

7  p.  m.  or  before  the  hour  of  6  a.  m.  dur- 
ing any  portion  of  the  taxable  year. 

• 

1200 

The  taxes  on  alcoholic  beverages  imposed  by  Title  VI  of  the  Act 
are  deductible  by  the  distillers,  rectifiers,  refiners,  producers,  or 
importers  against  whom  they  are  levied.  A  tabulation  of  such  taxes 
is  not  furnished  in  this  bulletin. 

For  detailed  information  regarding  the  taxes  enumerated  in  the 
foregoing  schedule  and  any  other  taxes  levied  under  the  Revenue 
Act  of  1918,  it  will  be  necessary  to  consult  the  appropriate  sections 
of  the  Act  by  which  they  are  imposed  and  the  corresponding  regula- 
tions promulgated  by  the  Commissioner. 


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